You may have heard this term recently and not be fully aware of what it is. First, it is not a loan modification. In a loan modification, you have to meet certain criteria and negotiate with the stubborn banks and hopefully in the end get some relief in the form of a lower payment or forgiveness for some of your outstanding mortgage. Second, it is not a short sale. In a short sale, you have to sell your home (with the banks approval), move and and start the process of finding a new home. Who wants to do that?
A mortgage principal reduction is a new form of relief for homeowners who owe more than 25% of their homes current value. In states such as Arizona, California, Florida, and Nevada, this represents a significant population.
This new service is made possible due to the negotiating power that institutional investors have with the banks. It is far more than what you could do or your real estate agent by him or herself for that matter. In the end, you will have a principal reduction that gives you 10% equity in your home, which for some is something they thought they would never see after the market dropped as it did.
Qualifying is even simpler than qualifying for a loan modification or a short sale which is even better news. The basics are that you need to owe at least 25% more than the homes current value, and not have a debt load of greater than 50% with the new lower mortgage payment.
My advice is to be very cautious of paying high fees to have someone help you with a principal reduction. For a while it seemed to be a solution, but one trusted advisor that I spoke with said that the banks are not as excited about doing these as folks had initially thought.
In the end, you might be better off trying to do your own loan modification.
3 comments:
Principal reduction will help some. However, there might be a tax obligation for the amount that is forgiven. Example, the house is valued at $400,000. The homeowner owes $500,000. The lender could reduce the principal to $360,000. Now what happens to the $140,000? If the bank forgives this amount the homeowner has to pay Uncle Sam some taxes. And the cycle starts all over again. Two years later foreclosure!
Hello
I am Daisy Williams. I belong from the Carson city of Nevada. I have a high interest in reading and writing articles. I maintain my own blog and publish it regularly
by adding financial related articles. I just happen to come across your site http://mortgagemarketnews.blogspot.com/ and found it really interesting and in fact important. I would be very thankful if you can share some good reasons to write some good articles or moreover if we can do guest post or some kind of article exchange, i will very much appreciate it.
Hope to hear from you soon
Thanks and Regards
Daisy Williams
@ Laura - I would hope people have learned their lessons and be thankful for the relief and commit to be financially educated so they do not end up in the same situation. I am sure some will, but sadly, some won't.
@ Daisy - We do not allow guest posts here, but here are a few places to find guest posts:
http://www.myblogguest.com
http://www.akaim.com/SEOLinkVine
http://www.bloggerlinkup.com
Hope that helps.
~ Anthony
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