What is a Loan Modification?
A loan modification is a renegotiation of the terms of your current mortgage loan to make the terms of your loan more manageable in the case of hardship. Your lender will restructure your loan payments to accommodate a hardship situation.
What Constitutes A Hardship?
Here are some examples of hardship that lenders recognize as justification for loan modification:
- Illness
- Loss of job
- Reduced Income
- Failed Business
- Job Relocation
- Divorce
- Death of Spouse
- Marital Separation
- Military Duty
- Medical Bills
- Incarceration
- Multiple Births
- Damage to Property by Natural or Unnatural Causes
What are some Ways That Loans are Modified? - Temporary reduction 1-5 years of reduced interest rates
- Forbearance Agreement past due payments and penalties & interest rolled into your payment until paid - This is NOT a good option as it increases your payment
- Extending the loan terms - taking a 30 year loan to 35 or 40 years
- Partial claim on some mortgage insurance to offset delinquent amount
- FDIC Solution interest rate reduction with gradual increases along with a balloon payment at the end of the loan
- Principle Reduction option reduces principle to current market value. NOTE: FHA (Hope) waiting for program to reduce principle of loan to market value but Lenders could chose if they wanted to participate. They are back at the drawing board to offer this.
How Do I Request a Loan Modification? It is best to begin the process as soon as you feel that are in danger of missing a payment. You do not have to be behind on your payments to request a loan modification.
Visit http://MakingHomeAffordable.gov to see if you qualify for assitance through these programs. You can fill out an online questionnaire that will give you an idea whether you qualify for a loan modification.
Contact your lender. Check your statement for a phone number or visit the lender's website and look for resources for home retention, loss mitigation, or similar term for borrower assistance.
You will be required to submit financial statements, proof of income expense summaries and an explanation of your hardship. Click here for a video overview |