The Loan Modification Process
When you are unable to make payments on your home mortgage, your bank is left with only a few choices, foreclosure being the most popularly known. But foreclosing on a property is not good for either you or the bank. Rather than repossess a property, it is easier and more financially sound for banks to help distressed homeowners keep their homes.
This is why loan modifications are becoming a more popular choice, especially given the real estate meltdown. If homeowners explore the option of a loan modification before they become too bogged down in debt, a modified loan might just help them keep their home and save their credit. And their bank won’t lose nearly as much money as it would if it foreclosed on the house.
Also, the new Federal government stimulus plan has given banks an additional, monetary incentive to help out borrowers who qualify for a loan modification keep their homes. This program, known as the Home Affordable Modification Plan, also provides monies for up to $5,000 to be reduced from the remaining mortgage balance of those homeowners make their modified payments on time.
So what exactly is a loan modification?
A loan modification is a permanent change to the original terms of a home loan. The new terms usually result in monthly payments that are more affordable to the homeowner. The process of requesting and working out a modified loan is no easy task. It requires a lot of paperwork and waiting, and each bank has their own criteria for qualifying for a modified loan.
Timing
First off, the best time to look into a loan modification is before you are in the process of foreclosing. Do it as soon as you start seeing that you will not be able to make future payments on time.
Be Prepared
To qualify for a loan modification, you are going to have to show proof that you currently or will soon be unable to make your monthly mortgage payments. So once you’ve decided that you are going to request a loan modification, make sure to have the following things ready and on hand before contacting your bank:
- Your monthly income. Include details on all sources
- Your paystubs
- A list of your monthly expenses, broken down by category
- Any bank statements and loan agreements
If you give your bank a detailed portrait of your current financial predicament, your bank will be better able to make a prompt decision on your loan modification request.
It might also be a good idea to include a letter explaining the nature of your financial hardship. Lenders usually take divorce, death of spouse, loss of income, job relocation or military service as acceptable reasons for considering a loan renegotiation. Everyone has their own particular set of circumstances that leads to financial hardship - being up-front and honest with your bank is critical to negotiating a long term solution that works for you both.
Waiting
It takes a long time to re-work the terms of a loan and put them into effect. The process of simply requesting the loan modification will take a long time. Waiting on hold when you call and presenting your case to the bank is a lengthy and involved task.
Once your request has gone through, it will be several weeks before the bank actually does anything. Each bank has a different way of dealing with loan modifications. While you wait, try to make the payments on your current loan on time and follow your bank’s instructions as they come.
Should You Seek Professional Help?
When requesting a loan modification, you can work directly with your bank. You don’t need to pay anyone to represent you or speak to your bank for you. The same information and paperwork you will provide your bank, is the same that you’ll have to provide any intermediaries that might want your business. However, it is important you realize that working with your bank will require a fair amount of time and patience – for those who do not have the time or the expertise, legitimate 3rd party companies who provide loan modification help may be of significant benefit.
If you want to pay someone for financial advice, that’s fine. But just know it is not required. If you do seek professional counseling, however, be sure that you are working with a trustworthy firm or company, as loan renegotiation scams are becoming more common throughout the country.
