What is Loan Modification?
By Zabrina Way
Photo: © iStockphoto
 The Obama administration recently announced that 500,000 homeowners should get loan modifications by the end of 2009. Now, many homeowners have questions about the process.
What is loan modification? Loan modifications are changes lenders make to existing loans when the borrowers have a long-term inability to keep up with loan payments. Modifications can include a reduced interest rate, a different loan type, an extension of the length of the loan term, or all the above. It typically costs the lender less than defaulting on the loan would, so they are sometimes open to the possibility of modifying your loan. |
Are you eligible for mortgage modifications? If your home is your primary residence, your mortgage was taken out before January 1, 2009, or your mortgage payment is 31 percent or more of your gross income, you might be eligible for a loan modification through the Home Affordable initiative. Your loan servicer will be able to tell you if you're eligible for modification.
When is loan modification suitable for you? If you can no longer afford to make your mortgage payments, but you could make payments on a modified loan, then loan modification may be right for you.
How do I know if I will qualify for loan modification? Prepare a detailed spreadsheet with your financial obligations to provide to lenders, then calculate the average cost of each category of item, utility or service you spent money on over the past three months. Write a hardship letter and include the necessary documents, then call or send the paperwork to your lender. If you qualify, work with them to fill out the necessary paperwork and go through the stop gap repayment plan. |
