If you're unable to manage your mortgage or you're already behind on payments, try negotiating a workout plan with the lender so that you can
avoid foreclosure. There are workout plans such as forbearance,
deed in lieu, short sale, loan modification and others. You need to choose the one that best fits your mortgage situation.
What is a loan modification program?
Mortgage loan modification (home loan modification) is where the lender may lower your mortgage rate, or add any dues to the mortgage balance and extend your loan period. This is to ensure that your monthly payments are reduced.
There can also be a reduction in the principal balance you owe. The purpose is to make your payments affordable so that you can save your credit and keep your home.
When is loan modification suitable for you?
Loan modifications (mortgage modifications) are suitable for you when:
- You have experienced a long-term reduction in income.
- Your monthly expenses have increased.
- You don't have enough income to pay off mortgage dues.
Are you eligible for mortgage modifications?
You may be eligible if:
- The lender hasn't declared a foreclosure yet and even if he has done so, he should have removed the loan from the foreclosure status.
- You're delinquent on the loan for 3 months or more.
- The loan has been originated for more than 12 months.
- You have stable surplus income to help you pay at the modified rate/terms.
- The property is in good physical condition.
How does a loan modification work?
If you're concerned about how to do a loan modification, here are
7 things you should be aware of.
- Review your financial situation: Prepare a Financial statement including a detailed list of your expenses (food, gas, credit cards and other financial obligations) in a spreadsheet and calculate the average costs on each item for the past 3 months or so. This is important because most lenders would ask you questions on your financial situation and require you to submit a Financial Statement.
- Hardship letter: Prepare a Hardship letter of not more than 2 pages wherein you'll put down why you aren't able to carry on with the usual payments and why need a loan modification. Know how to write hardship letter.
- Collect documents: You need to gather certain documents which the lender may review when you request for mortgage loan modification. The documents are:
- Paystubs and bank statements for past 2 months http://www.REALSTUBS.com
- W-2 Form for last 2 years for the employed http://www.REALSTUBS.com
- Form 1040 for last 2 years if you're self employed
