Expectations During a Home Loan Modification

When you are in danger of losing your home to foreclosure, everything about life can seem overwhelming. Working with your lender towards a home loan modification can provide a potential solution for keeping your home and getting back on your feet financially.

First, what exactly is a loan modification?

Specifically, a loan modification consists of a permanent change to one or more of the terms of your loan. This could include the interest rate, the time period over which your loan is to be repaid, the fixed or variable nature of the loan, as well as other factors. The goal is of course to restate the terms of the loan in such a way that will enable the borrower to again make payments and fulfill his or her obligation to the bank.

The Federal Government has instituted funding for loan modification programs that encourage banks to work with borrowers who are in default and avoid foreclosure on their properties before the home is listed for auction.

Eigibility & Misconceptions

In order to determine your eligibility to obtain a home loan modification, the bank will require several things from you, including: complete financial statements, proof of income, and a hardship letter that explains the reason for which you have been unable to make payments in a timely manner. Your income will have to be such that you are not able to make your current payment, but enough to be able to consistently make a smaller, modified payment. No bank will modify a loan if sufficient income is not available to reliably meet the new terms of that loan.

One common misconception is that you will have to miss payments in order to qualify for a loan modification. This is not the case. If you anticipate that your income has changed such that you will no longer be able to make your payments, it pays to get in contact with your bank as soon as possible to discuss your situation. If you can clearly show your reduction in income, your lender may very well be willing to renegotiate the terms of your loan to keep it in good standing.

If you are already in the situation where you are behind in your payments, obviously loan modification can work for you as well. The key is to act quickly. Living in denial about your situation will not bring you closer to resolving the problem, and in fact will make things worse. Take the initiative to contact your bank, discuss your situation with them, and work with them towards some sort of recourse other than losing your home.

Next Steps

Of course, working through all of these details yourself can be very overwhelming. If you find that that is the case, it may be wise to contact a professional who can provide you with the right information and assistance to help you fight foreclosure. The right people to work with are those who will help you obtain timely, objective information, and then guide you through each step of obtaining your loan modification.