Understanding The Loan Modification Process

If you are suffering from a financial hardship and unable to make your current monthly mortgage payments, a loan modification may help you save your house from foreclosure and help you get your finances back on track. Before you apply for a loan modification with your lender you need to understand how the loan modification process works.

First of all, what is a loan modification exactly? A loan modification revises the terms of your loan and results in lower, more affordable monthly payments. This can be accomplished in various ways including lowering the interest rate charged on the loan, lengthening the payment schedule, or forgiveness of mortgage principal.

It is important to understand that foreclosure is not only bad for you the homeowner but your lender as well. Foreclosures are very costly for lenders. Therefore a loan modification can be a way not only for you to save your home but also benefit your lender as well. Keep that in mind when you are in negotiations with your lender.

One of the first things you need to do is find out what your lender's eligibility requirements are for a loan modification. Each lender has different requirements. You need to find out so that you can propose a realistic loan modification request that fits in with your lender's criteria.

There are two important things you will need to demonstrate in order to be approved for a loan modification. You will need to demonstrate that you are suffering from a financial hardship that makes meeting your current mortgage payments extremely difficult. Acceptable financial hardships can include loss of employment, reduced income, divorce, high medical expenses and other similar financial hardships. The second thing you need to demonstrate in order to be eligible for a loan modification is that you will be able to meet lower monthly payments under a loan modification agreement.

Once you have a general understanding of how the loan modification process works, you need to contact your lender's loss mitigation department and request a loan modification application. You then need to complete the application and submit it along with any support documents your lender requests such as pay stubs and income tax returns. Submitting an accurate, complete and compelling loan modification application is critical in getting your loan modification approved. Remember the two things that you need to demonstrate: your hardship and your ability to meet the new lower payments under the loan modification agreement.

Once you have submitted your loan modification agreement you need to follow up with your lender until they give you a decision.

The three basic steps of the loan modification process are doing your upfront research, the application process, and following up with your lender until your loan modification request is approved.