Principal Reduction Alternative
The Principal Reduction Alternative is also known as PRA..
It was created in order to help homeowners whose homes has decreased in value and now owe far more than their home is currently worth.
How Does The PRA Program Work?
The program works a little differently depending on the lender. But essentially, the principal reduction alternative program is a deferred principle reduction program.
The Principle Reduction Does Not Happen Right Away
Here’s how it works. Once you’ve been approved for a loan modification, if you make your new modified payments over the next 3 years on time and at the new amount you will earn a principle reduction.
This makes sense. Your lender is going to be taking a financial loss by reducing your principle, so the lender needs to be convinced that you’re going to make your modified payments in full and on time before they reduce your principle.
It’s very important to keep your account in good standing. This means not missing any payments and always paying on time during the trial period. If you do so, on the anniversary date when your modification went into effect, the lender must reduce your unpaid balance by one third of the initial PRA Forbearance amount. This would be done every year of the 3 year trial. But only if you are in good standing.
Who Is Eligible for the Principal Reduction Alternative?
As of October 1, 2010, all applicants who seek loan modification under certain guidelines must also be evaluated for a principle reduction if they meet specific additional requirements. The lender must do what is called a “market to market loan to value ratio” if your loan is more than 115% you can qualify for a PRA.
What Is A Market To Market Loan Value Ratio Anyway?
Here’s an example:
Let’s say your home has a loan balance of $200,000. The market value is let’s say $300,000 The loan to value ratio in this example would be 66%. It calculated by dividing your loan balance by the market value to get the percentage amount. Of course, for the sake of this article we’ve simplified the process just to give you a general understanding.
What’s Next?
If you’re having difficulties paying your mortgage or you’ve already missed payments, you may want to consider a loan modification. The Obama Administration created PRA to help homeowners avoid foreclosure. However, the application process if not done correctly will get your application denied.
How Can I Make Sure I Get Approved?
There is no way to guarantee you will be approved for a principle reduction or loan modification. But there are steps you can take to increase your chances significantly.
Make sure you have all of the required documents.
Be sure you fill out the application completely
Write a well written hardship letter
Be careful not to exclude any extra income
Be prepared to negotiate with your lender
Follow up at least 2 times a week with your lender.
If the above seems a bit much, frankly it is. But it is all a part of the process.
The Principal Reduction Alternative program while excellent, is complex. Consider hiring a qualified loan modification service to handle the process for you. One small mistake can make the difference between getting approved and getting denied. Increase the odds to your favor, look into letting a professional negotiate on your behalf.
Visit Get A Loan Modification to see if you qualify for this program!