A loan modification is a loan intended to help struggling homeowners who cannot meet their monthly mortgage payments save their homes from foreclosure. A loan modification is an agreement that alters the terms of a loan so that the monthly payments are lower and thus more affordable. The lower payments can be accomplished by extending the time on the repayment schedule, lowering the interest rate, or partial principal forbearance or forgiveness.
Foreclosure not only hurts homeowners but lenders as well. There are very high costs associated with foreclosures for lenders, and it is often more beneficial for a lender to offer a loan modification than to let the borrower go into default and go through a foreclosure process. The Obama administration has also recently added financial incentives for lenders to offer loan modifications to struggling homeowners which has made them even more accessible.
If you are considering a loan modification, the first thing you will need to do is become familiar with your lender’s loan modification eligibility requirements. These vary from lender to lender. You can contact your lender’s Loss Mitigation department to find out what the requirements are.
In order to be approved for a loan modification you will need to show that you have a financial hardship which makes it very difficult for you to pay your currently monthly mortgage payments. A financial hardship could include things like losing your job, a reduction in your income, high medical bills, a divorce, job relocation, or military service. The other thing that you must prove in order to be approved for a loan modification is that if your modification is approved you will be able to meet the revised, lower mortgage payments.
You can obtain a loan modification application from your lender’s Loss Mitigation department. You will need to fill out the application and attach any supporting documents requested by your lender, including copies of your income tax return and pay stubs. It is vitally important that you submit a complete and accurate loan modification application in order to get your loan modification approved. In your application you must show that you cannot meet your current monthly payments due to your financial hardship, but that you will be able to meet lower payments under a revised loan agreement.
After you submit your application, you will need to be persistent and follow up with your lender’s Loss Mitigation department until you are approved or they provide you with a final decision.