Loan Modifications: Tips for Foreclosed Homeowners

If your lender has instituted foreclosure proceedings or you are in default on your mortgage, you may want to look into getting a loan modification. A loan modification can lower your monthly mortgage payment to one that you can afford so you don’t lose your home to foreclosure.

What is a Loan Modification?

A loan modification is a modification of your existing mortgage. The lender modifies the loan by lowering the interest rate and/or extending your loan term. Arrearages are tacked onto the back end of the loan. If you have a variable interest rate loan, loan modifications work best if you can lower your interest rate by 2 points. Otherwise it won’t make enough difference on your payment.

Qualifying for a Loan Modification

You should contact your lender to find out if you qualify. There are several loan modification programs available to homeowners. The government’s Home Affordable Modification Program  

(HAMP) is available to homeowner’s who meeting the following guidelines:

  • You must reside in the home and it must be your primary residence
  • Have a mortgage equal to or less than $729,750
  • Entered into a mortgage on or before January 1, 2009
  • You must have had your mortgage for at least one year
  • A reduction of your mortgage payment to 31% of your gross income 

Loan modifications are successfully helping millions of homeowners keep their homes with affordable and lower monthly loan payments. Keep in mind that mortgage modifications are temporary. Most are only good for a few years. The purpose is to help homeowners keep their homes while they are experiencing temporary financial hardships.

Tips to Obtaining a Loan Modification

Here are some tips to obtaining a loan modification:

  • Start the process early before you fall too far behind on mortgage payments.
  • Contact the loss mitigation department of your lender or loan servicer and ask them if you qualify for a modification.
  • Find out if the application is available online or if they need to mail you one.
  • Take your time completing it and provide all the information requested. Failure to answer the questions or give the lender what they need will delay the modification, or worse, result in denial.
  • Follow-up on the application.  Call at least every few days to find out the status.
  • You may want to hire a loan modification company or attorney to help you with the process.      
  • Be patient. Loan modifications can take 3 -6 months to get am approval.

A loan modification is a good option to explore if you want to save your home from going to foreclosure. Other options may be to refinance, sell your home via a short sale, deed in lieu forbearance, reinstatement and filing for bankruptcy. Lenders want to work with their borrowers to find a solution because foreclosure costs everyone time and money. They would rather find another way to resolve the matter.  So if you want to avoid foreclosure, you should not wait until it is too late. Contact your lender. Communication is important in obtaining successful results.

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