Principal Reduction Programs -
Do They Exist?


Principal reduction programs are a highly sought after option for homeowners who find themselves in an "upside down mortgage."  There are a lot of scared and frustrated homeowners doing everything they can to keep their homes. 

Before we get into the particulars, just so we can make sure we're on the same page, let's take a look at the most common reasons homeowners like yourself may need to look at a program like this as an option.

What Exactly Is An Upside Down Mortgage?

This happens when a home has negative equity.  When the real estate market collapsed in the U.S. a few years ago, the buying frenzy came to a screeching halt. It even became hard for people with good credit to purchase a home.  With many homes on the market and not enough buyers, the market dropped drastically leaving home values much lower than before.  This created many U.S. mortgages with negative equity problems.  And when you have no equity, you cannot refinance.

Here's an example of an upside down mortgage.

For example, you bought a home in 2005 for $300,000 and put 30,000 down.  Your principal balance was then $270,000.  By 2009 it was worth $175,000 and your principal balance is now at $250,000.  You are now upside down $75,000.

If any of the above sounds like your situation, you can breathe a sigh of relief. At least you know you're not alone.  Okay, so now let's get into the details of principle reduction programs, how they work and what you may want to consider.




What Are Principal Reduction Programs?

In a nutshell, this kind of program reduces the mortgage back to a balance that is more in line with the current value of the property. So referring to our previous example, the new principle amount would be based on the $175,000 value. Essentially getting rid of the negative equity and also allowing you the homeowner to be able to make your mortgage payments.

Some lenders have programs that can do this once the modification is approved and others can do a principal reduction in steps, say over 3 years time.

The  Principle Reduction Alternative (PRA)

Homeowners may reduce the principle on their mortgage via the Principle Reduction Alternative program if they qualify.

The qualifications include:

Mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.
You  must owe more than your home is worth.
You must live in the home carrying the mortgage you want to modify.
You got your mortgage on or before January 1, 2009.
Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
You owe up to $729,750 on your 1st mortgage.
You have a financial hardship
You have documented income to prove you will be able to make the modified payments.

Is This The Answer To Your Problem?

Maybe or maybe not.  Remember your lender needs to be convinced that it is in their best interest to lose money by reducing the principle on your mortgage.  They will use NPV (Net Present Value) calculators to decide whether it is in their best interest to reduce the principal balance or foreclosure and sell the property. 

It's not going to be an easy decision to make on your part.  But if you're in trouble financially, you can't afford to waste time thinking about it. 

If you do satisfy the requirements, the most difficult part of the process is submitting the correct documents and filling out the application itself.

That may not seem like a big deal.  Gee how difficult could it possibly be..right?  Well, you have no idea how easy it is to leave out just one little document...and have your application denied.  Yep.  It happens like this quite often.  That means you'll have to start the process all over again.

Now What?

It may be in your best interest to consider a loan modification service to assist you in the application process.  You can save yourself from a lot frustration and stress by allowing experts to guide you through the process.

You can visit BestMortgageLoanModification.com to see if you qualify, call 888-766-3693 or read about other companies that may be able to help HERE.

Principal reduction programs are complex.  The process involves tons of documentation and the ability to negotiate a fair and balanced deal for yourself.  There are also other loan modification plans you should take into consideration as well.  A qualified loan modification expert can help you choose the best option based on your situation.






-------------------------------------------------------------------------------------------------------------------