Loan modification refers to changing the terms of your home mortgage, making the payments more affordable and helping to prevent foreclosure. If you are interested in this, your lender can reduce the mortgage’s interest rate, stretch the period of the loan, lower the actual principle balance, or use some type of combination of the methods listed here.
Who Will Qualify for a Loan Modification?
There are not any set guidelines that determine who will be a good candidate for the loan modification. Ultimately, it is up to the lender if they will modify your mortgage which is typically going to be based on what is in the best interest of the lender. However, there are some general guidelines regarding when a modification will be feasible. The factors that a lender will consider include:
- * The current condition of the property
- * If you obtained the loan more than one year ago and if you have been late on, at minimum, three months of your payments
- * If the financial situation has become worse but you still have some type of stable income to pay the modified terms of the mortgage
What are the Steps for Loan Modification?
If you want to initiate the modification process, you will have to make contact with your lender. You will also have to write a letter that describes, in detail, your hardship. In many cases, this is the most persuasive way of convincing the lender you are in need of a loan modification.
The lender will also require a good amount of paperwork once they are aware of your current situation. This means you provide accurate and detailed information about your expenses and your income. You will have to prove you are no longer able to afford the payments that are currently in place. You should gather together documents such as tax forms (including your W-2), bank statements, and pay stubs. If your request is approved by the lender, then your actual mortgage payments will be placed on hold for as much as 60 days, while the new terms for your home loan are finalized and a new contract is created.
The fact is that foreclosure is a labor intensive and costly procedure for lenders, which is why you may have a great shot of receiving loan modifications. What you should remember, however, is that there are no guarantees.