Q & A with Dottie Herman

» Featured Columnists | By Dottie Herman | June 30, 2011 9:30 AM ET

Q1 - My property is currently a short sale. If I have a relative that wants to purchase the home is that still possible? How do I go about this?

A - Unfortunately, in a short sale situation the bank does not have to accept or approve a short sale. If the bank does approve the short sale, there is a form they mandate the seller sign stating they are NOT selling to a relative. Sorry, but It is generally forbidden by the lenders to sell to a relative. It must be considered an "arm's length" transaction.

Q2 - What is the difference between a loan modification and a refinance?

A - Most home owners refinance (substituting a new loan for the existing one) in order to lower their interest rate, to extend the life of their loan, and/or to pay off other debt. Homeowners seeking to refinance their mortgage in the current market often face difficulty refinancing criteria.  Lenders require that homeowners who are looking to refinance have a high credit score, considerable equity in their home, and documented job security.

A Loan modification is a change of some or all of the terms of your current mortgage.  Loan modification is an amendment between the homeowner and their current lender. Despite popular belief, a homeowner does not have to be in default to apply for a loan modification.  However, a homeowner needs to provide enough evidence to show that their current loan has placed the homeowner in significant financial difficulty.  The lender would generally rather keep the homeowner as a client and modify the homeowner's loan than have to liquidate the property in a foreclosure sale.

Q3 - Are there costs to a loan modification? Is it one flat rate?

A - There are usually fees involved with a modification and they are based on the loan amount.  These can be financed by adding the fees to the mortgage amount. There may be a limit of 2% (of the loan amount) that can be added into the loan.  To find free advice and services regarding this, you can contact various government agencies and HUD counseling agency, you can also approach the state department handling real estate.  Another option available to you is to hire a professional modification company to get the job done. A quality loan modification company will charge fees for the services they extend to you. Sometimes the loan modification companies charge a flat fee.

Q4 - I am going to buy a home that needs a lot of work. Is there a way to build a renovation loan into my mortgage, as I do not have the cash to pay for all of it out of pocket?

A - The 203(k) loan program, also known as a "Renovation" loan, offers borrowers the resources to rehabilitate a home that may be in need of repair - either the home that they currently live in, or that special fixer-upper opportunity. One single loan is used to pay for the purchase (or refinance) and the cost of renovating the home. Made available by the U.S. Department of Housing and Urban Development (HUD), the FHA 203(k) program has already provided many buyers with the funds necessary to buy their first home, or greatly improve a current home. The FHA 203(k) loan is available to borrowers of all income levels, to homeowners who plan to occupy the house, and for homes with one to four units. The financing is available for up to 96.5% of the after-improved value and is based on an appraiser's estimate of what the property will be worth with the improvements. Contact a renovation loan specialist who will give you specific information on your situation.  Good luck!

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