A loan modification is a change in one or more of the terms of your loan. It allows the loan to be reinstated and will result in a mortgage payment that you can afford. The loan is adjusted either by lowering the interest rate, increasing the loan duration or other factors. The desired end result in the loan modification is a mortgage payment you can afford and it keeps your home out of foreclosure.
If you are one of the many people who are struggling to make ends meet in the bad economy, a loan modification may help you save your home.
In the past, you could only get a loan modification if you were behind on your payments. That's not true anymore. Find out if you are eligible and try to save the home you have worked so hard for. Don't just give up and walk away from your home.
Am I eligible?
Do I need help with the loan modification process?
Find out who owns your loan
I personally used the Making Home Affordable program to refinance my house that was underwater. They reduced my interest rate and extended the term of the loan to bring my payment down a significant amount.
During the application process, you'll have to disclose financial information that you may not be proud of. However, you need to be 100% honest in all your dealings with the lender. Give the lender the required documentation so that the process goes smoothly. Anything other than honesty will come back to bite you.
Before contacting your mortgage servicer, have the following documents ready for the application process. (See the Making Home Affordable Website)
The Hardship Letter
A hardship letter is very important when applying for a loan modification. The hardship letter should detail your current situation and an explanation as to why your income has been reduced or what caused your expenses to increase (job loss, medical bills).
Make sure the hardship letter is very specific as to how you got here and why. Don't write a sob story but be very up front and specific. The lender needs to understand from your hardship letter why you're in trouble and you are seeking to stay out of foreclosure proceedings.
The Loan Modification Process
The bank won't cooperate
If your lender just refuses to cooperate, don't hesitate to contact your congressman. The lender took tax payer dollars in bailout money and should be willing to help you.
Now, I wouldn't do this in the beginning but if you are getting poor service or no response, contacting a politician is to your advantage.
Be very clear with your lender that you will be getting a member of congress involved for their assistance.
Document, Document, Document
Every time you have any sort of correspondence with your lender, write it down. If you are providing documentation to them, use FedEx or certified mail where it has to be signed for upon receipt.
The reason you need documentation is just in case things fall through and your home goes into foreclosure. You have the necessary documentation that proves you tried to find a solution to your mortgage crisis, but the lender would not cooperate.
Follow up, Follow up, Follow up
Remember, the squeaky wheel always gets the grease. I recommend following up at least once a week with the lender to see where things stand. This could be the only thing that keeps the process moving.
The lenders are busy too and a phone call keeps your file on top of the stack, instead of letting it drift to the bottom.
Beware of scams
Absolutely do not pay any upfront fees or disclose any bank account information to anyone besides your lender or bank. Anyone else asking for this information is likely working a scam.