Loan Modification – Helpful Information for Homeowners attempting loan modifications on their own
What is a Loan Modification?
A loan modification happens when a borrower, who is facing great financial hardship, manages to work with the lender to change the terms of their mortgage loan. The changes may be permanent or temporary and usually focus on the interest rate, length of the loan or the monthly payment.
Who can qualify for a Loan Modification?
Anyone facing serious financial hardship who expects to be in danger of home foreclosure should consider a loan modification. The final judge on who is eligible for a modification is the lender holding the loan so the criteria changes from situation to situation and lender to lender. There are also varying circumstances that can affect a homeowners chances if they have heavy debt or if they are filing for bankruptcy. We assist our clients in determining when to apply for a loan modification if they are also in need of bankruptcy, some may need to file before, some after their loan modification.
In general, you can refer to the following guidelines or your lender’s published guidelines.
Most lenders will not approve a loan modification unless someone has a high rate of mortgage debt compared to income. In addition your home likely would have to be worth less than the total amount of outstanding mortgages on the property. In addition, a borrower would have to have a realistic chance of keeping up on the modified loan amount.
If a homeowner purchased a home and took out loans that they clearly could not afford, a loan modification is not a likely outcome. People in this situation would instead likely need to pursue Foreclosure, Deed in Lieu of Foreclosure, Short Sale, Bankruptcy or a combination of these options.
How does the Loan Modification process work?
The general process of a loan modification involves convincing the lender that you face a grave financial situation but that you can also keep up to date on the modified monthly payments.
In order to prove these, you need to present a complete picture of your current financial situation as well as an idea of what can be expected in the months and years ahead. A borrower would also need to speak to the correct people at the lender to make sure that the person has the authority to make decisions and enact any agreement made.
Once you have proven your current hardship and your future ability to keep up on payments an agreement is signed by all parties and a borrower will receive and outline of their new payment responsibility.