Rental property: Modify your loan to make your investment affordable

You may be struggling to repay your loan that you took for your rental property. You'd have faced a lot of difficulty in getting it modified by your lender, if the government hadn't come up with its own loan modification program. However, since help is available at hand where over 100 lenders are participating to provide mortgage relief to struggling borrowers like you, it is important for you to find out the details about the same before applying for one.

Federal loan modification program – The basics of mortgage relief

This particular pro-consumer program was floated in 2012, where apart from the 100 government-approved lenders, private lenders too are allowed to modify the mortgage loans of rental homeowners like you who are unable to stay current with their monthly mortgage payments.

Through this loan modification program, the government has intended to encourage lenders to work with struggling mortgage borrowers to reduce the monthly loan repayment amount either on a short-term basis or permanently. The central theme for the program is to stop the rising trend of foreclosures all the across the country.

Usually, loan modification help was provided to those borrowers who used their respective homes as their principal residence. In other words, to be eligible to get their mortgage modified, borrowers should be the actual occupants of the property and they must use that for a major part of the year.

This particular clause prevented rental property borrowers as well as second homeowners from having their loans modified.

How does the HAMP help rental property owners?

In case, you've not been occupying your home and have rented that out or you own a second property and you are planning to put that on rent, then you are a suitable candidate for the government's loan modification program. This is program is formally known as Home Affordable Modification Program or HAMP.

However, there are certain basic criteria that you'll have to fulfill so as to take advantage of HAMP. They are as follows:

  • You must have a financial hardship to prove. 

  • You must be delinquent on your monthly loan repayments. 

  • You must have substantial income to continue making the modified monthly payments. 

  • Your loan should have originated before the year 2009. 

  • Your loan's principal amount shouldn't be over the following that are decided for rental homes. They are $1,403,400 for a 4-unit home, $1,129,250 on a 3-unit home, $934,200 on a 2-unit home and $729,750 on a 1-unit home.

FDIC and its view about loan modification

There are selected lenders who follow their own criteria to modify loans for rental property owners. However, it is the Federal Deposit Insurance Corporation (FDIC) that issues guidelines for the lenders regarding the proper way to provide loan modification help to the borrowers.

By modifying rentals, the program will enhance the home affordability of the borrowers, boost the probability of mortgage loan performance and safegaurd housing communities, the FDIC say.

According to this federal agency, a loan modification program may be of two-year duration to say the least. As result, rental property owners may enjoy lowered rate of interest, extended loan maturity term or forbearance on principal balance payments.  

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