How to Negotiate a Loan Modification with Your Lender

Loan modification is one of the most popular options for preventing a foreclosure. If you are late in your mortgage payments reach out to your lender or mortgage company and negotiate with them possible ways to modify your loan. And although it may sound like a daunting task, the key to effectively procuring a loan modification is to have the right information and all the necessary paperwork before approaching your lender to negotiate.

Here are some useful tips on how to negotiate a loan modification with your lender:

a) Contact your lender in advance

Many homeowners start negotiations with the lender on their loan modification after they receive a "Notice of Default" on their mortgage. However, it is to your best interest to contact your lender as soon as you realize that you won't be able to make your monthly mortgage payments or as soon as you miss one payment. The sooner you contact your lender and apply for a loan modification, the earliest you will be able to find out about your options and get out of the difficult situation. Do not wait for your lender to find you. Find them first and explore your options.

b) Be specific in the hardship letter

One of the most important documents when applying for a loan modification is the hardship letter. Many homeowners do their best to apply in a timely manner for a loan modification to avoid foreclosure, but they forget to file a hardship letter or they simply think of the hardship letter as a cover letter for their loan modification application. However, a hardship letter informs the lender or the mortgage company about your real financial situation and why you should be considered for a loan modification. In other words, a hardship letters provides honest information about your financial situation and why you should be approved for a lower monthly payment. Therefore, make sure you include all the details about your finances along with proof capable of convincing your lender that in the near future you will not be able to cover your monthly payments. Otherwise, why would they consider you for a loan modification?

c) Give the lender an idea of what your property can rent

The reason you are applying for a loan modification is to get a second chance on your mortgage and avoid foreclosure. Therefore, let your lender know what your property can rent. In that way, your lender gets an idea of what rent to expect if they are not able to sell your property in such a slow housing market and, at the same time, you explain why you are looking for a similar property with a lower rent than yours. By being honest with your lender you are more likely to get a loan modification.

d) Determine the fair market value of your property

Another important consideration when applying for a loan modification is to determine the fair market value of your property.

You can ask a professional appraiser to perform a thorough and detailed assessment of your property. The assessment involves a physical inspection of your property and verification of property data through public records. Besides, the professional appraiser will also evaluate the market trends to determine the fair market value of your property.

However, as the assessment of a professional appraiser costs $250 - $400 depending on the size of your home, you may also use an online valuation method. Besides, the bank is highly unlike to send a professional appraiser over to your house because it costs. Therefore, use Zillow.com, Realtor.com, or even Yahoo Real Estate to determine your home value and apply for loan modification.

e) Have a pay-off plan

The last step in the loan modification process is having a pay-off plan. When your lender goes over your application and hardship letter, they will ask you how you plan to pay off your loan. This is why you have to submit honest information in your hardship letter; so that you ask for a mortgage payment that you can afford. Besides, make sure you let your lender know when your next payment is due. In doing so, you show that you really want to pay off your loan and that you just face a hardship in covering the current payment.

Also, if you have an adjustable rate mortgage that makes it more difficult for you to meet your payments, inform your lender that you are willing to switch to fixed rate mortgage. Explain in your hardship letter what your income is, how you plan to pay off your loan and what your monthly expenses are. In general, the more information you provide, given that it is right and accurate, the more likely you are to be approved for a loan modification.