Selling a home after loan modification

Article by Hayley Harrison, Former Branch Manager and lending officer for a community bank

Often, people who receive loan modifications during financial hardships regain their financial stability. If you’re among those who benefited from a modification and you’ve found a new job in another city or are ready to move to a different home, you may wonder just how your previous modification will affect the sale. How much of an impact your loan modification will have on the sale of your home varies largely based upon your individual situation.

Can You Sell Without a Penalty?

The first thing you need to consider when selling your home after a loan modification is whether or not the terms of the agreement allow for the sale. Typically, standard bank loan modifications do not restrict the sale of a home, but if you participated in an agency-sponsored modification program, you may be subject to a clause that assesses a penalty if you sell your home.

What Is an Agency-Sponsored Program?

Loan modification programs sponsored by federal or state government agencies or nonprofit groups often have additional benefits beyond the standard reduction of the payment. These programs usually feature a reduction in your principal or a specific period of time during which you make interest-free payments. In exchange for participating in the program, you may have to agree to remain in your house for as long as you receive benefits from the program.

What if You Have an Agency-Sponsored Modification?

If you determine that you participated in an agency-sponsored modification program, locate your original modification agreement and read the terms listed there. The document will explain what restrictions there are upon home sales and if the restriction lasts until you completely repay your mortgage or for a set period of time, such as five years from the modification. The penalty for selling your home will also be explained in the terms.

How Will You Handle the Penalty?

In some cases, you may not have a choice but to pay the penalty for breaking the no-sales clause on an agency-sponsored modification, especially if a new job requires you to relocate. One option to handle your penalty is to repay it with cash from your personal savings or from the money you receive from the sale of your home. You can also contact the agency with which you worked to see if it is possible to make payments on the penalty amount.

Did You Consider Your Credit?

For any type of mortgage loan modification, you must consider the effects that the modification had upon your credit. Although this won’t affect your ability to list your new home for sale, you may find it difficult to obtain a mortgage to purchase a new one or to pass a credit check for a new apartment. If your choice to sell your house is a matter of preference rather than necessity, consider obtaining your credit score from each of the three credit reporting agencies (Experian, TransUnion and Equifax) before putting your home on the market.