What's a Loan Modification? How Do I Get One?

Ever heard of a loan modification? It’s basically a lifeline for a homeowner who is at the end of their rope. Some people fall on hard times and have severe difficulty paying their mortgage. A loan modification gives them an alternative option other than foreclosing or selling their home. If they opt for a loan modification they are basically agreeing with the lender to change the terms of the loan.

There are several ways to change a loan. The lender could lower the interest rate, extend the life of the loan, or allow the borrower to skip a couple payments until they have landed the new job they’ve been after, but will add the skipped payments to the principal to pay down the road. This is all of course, circumstantial for the borrower, but the end goal is mostly the same: to financially relive the borrower whose mortgage payments are stressed.

You might be asking why lenders would agree to take less money. Pretty much the banks look at it like they’re keeping their business rather than losing it. Yes loan modifications require specific qualifications too, so don’t be surprised if not everyone gets one.

How to get a modification

If you are considering a loan modification, the best thing to do first is to decide if you absolutely need one or not. If you become desperate to pay your mortgage, chances are you need one.

In seeking a loan modification, you must apply through your current mortgage lender. You will be asked to fill out a Request for Mortgage Assistance form. You will need the following documents:

  • Your monthly mortgage statement
  • Two recent bank statements
  • A letter describing your current hardship and their circumstances
  • A utility bill with your name and address
  • Information about any other mortgages on your home
  • Two most recent federal tax returns
  • Documentation of any benefits you receive (disability, social security, public assistance, etc.)
  • Two recent pay stubs if you are on salary, or hourly wage earners
  • For self-employed homeowners, most recent signed and dated quarterly profit or loss statements
  • Documentations of any extra income received from other sources (tips, bonuses, overtime, etc.)

Where to go for guidance

This may seem a bit overwhelming considering your home is at stake, but fear not, there are plenty of professionals willing to help with these matters. They are willing to help walk you through the process while having your best interest in mind. Just be sure to choose a quality firm; one that doesn’t charge you for simply assessing your eligibility.

A good place to start is HUD.gov.

Another agency is the government’s Home Affordable Modification Program. 

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