written by: Mike White•edited by: Elizabeth Wistrom•updated: 8/13/2010
If you are not able to make all the payments on your house and are afraid of losing it, you might consider a loan modification program. You may wonder what is a loan modification program, how you apply, and what the qualifications are. This article will tell you.
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Can a Loan Modification Help You?
Are you afraid of losing your home? Do you find yourself falling ever further behind in your monthly payments? It may be possible a mortgage loan modification program might be what you are looking for. If you qualify, you might again be able to afford the payments on your home. You may be able to avoid foreclosure with a loan modification.
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What is a Loan Modification and How Does it Differ from Refinancing?
You may wonder just what is a mortgage loan modification. You might also wonder how it differs from refinancing, or how you might apply for a loan modification and what the qualifications are.
If you refinance your loan, you naturally would hope to get lower interest rates. You would then have the chance to pay the loan off sooner. You might also have the chance to have lower monthly payments. A home mortgage modification, on the other hand is not a new loan at all, as a refinance is. It is just a revision of your current mortgage, and is based upon certain stipulations of financial need, so not everyone qualifies.
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What Are the Qualifications for a Loan Modification Program?
There are qualifications for a loan modification program which must be taken into consideration. First of all, you need to demonstrate to your lender that you have suffered a financial hardship. You must demonstrate that this hardship makes paying your loan unaffordable. Some circumstances are divorce, the death of a family member, military service, a reduction in income or job loss, illness or major medical expenses, job transfer, or incarceration. The loss of equity will not count.
You must also prove to the lender that with a loan modification you will be able to make loan payments now and in the future. Your lender will want to know you will not default, if you receive new terms. You must demonstrate that your property taxes, mortgage payment, insurance, and homeowner's dues are more than 31% of your gross income. You will also have to submit a complete and accurate application, with adequate information to your bank.
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If a Bank Holds All the Cards, Why Would it Want to Give You a Loan Modification Anyway?
What is a loan modification program going to do for you? You may think a bank holds all the cards if you are so far behind on your mortgage payments that you are afraid of losing your home. You can't understand why a bank would give you better terms. Why would it want to give you a loan modification? The catch is that in the current climate, the economy is so bad, that if it foreclosed on your home, there is no guarantee it would be able to sell it to someone else and make money. After all, getting some money in the deal is better than no money. Also, foreclosure proceedings are expensive for banks.
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How Do I Apply for a Loan Modification?
Taking all of the above into consideration, if a loan modification sounds interesting to you in your circumstances, you might wonder how to apply. Each bank does have a loan modification or loss mitigation department to handle such requests. You must contact the bank as soon as you find you have a financial need. Do not go into foreclosure and then expect the bank to help you with a loan modification or loss mitigation, because by law, they cannot.
You can download a loan modification form from the US government website, Making Home Affordable. This website was established during the mortgage loan crisis to help people who were in true financial need and losing their houses. The US government stepped in to help. By law, if you meet the qualifications, the bank's loss mitigation department has to work with you.
Fill in the form and supply all of the information exactly as required. Do not think you can leave off even a bank statement if it is required. Beware of so called, loan modification companies. When you don't have the money to pay your mortgage, why on earth would you pay someone for something you can do yourself?
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How Do I Find a Legitimate Loan Modification Company or Counselor?
You can increase your chances of finding a legitimate loan modification company by going to the website of the Department of Housing and Urban Development at hud.gov. The link provided in this article goes to a portion of the HUD website that gives phone numbers to help and links to portions of the HUD website to help you find a government approved, legitimate loan modification specialist. It also describes types of loan modification fraud you should avoid.
To avoid foreclosure, it is important to remember that while here are legitimate loan modification companies, there are also fraudulent ones. If you only do an online search or look in the phone book to try to find help, you might find either. If you do not use the HUD website, you should at least talk with an expert of some kind, whether it is a real estate expert, attorney, or someone from the bank who holds the loan on your house.