Understanding a Loan Modification

Whether you want to call it a loan modification, restructuring, mortgage modification, or workout plan, you’re usually referring to the same thing. Modifying a mortgage is when a borrower is facing great financial hardship, is struggling to make his or her mortgage payments on time or at all, and works with his or her lender to modify or change the terms of the mortgage loan. These changes may be permanent or temporary, and they can affect the mortgage rate, monthly payment, and amount of time on the loan. The goal with loan modifications is to reduce the homeowner’s monthly mortgage payments to about a third of his or her gross income.

Not everyone is eligible for a loan modification. In order to qualify, you must meet certain requirements, and these requirements can vary. In general, though, borrowers may qualify if they are having difficulty staying current on their mortgage payments, their income is not sufficient to cover their mortgage payments in addition to necessary living expenses, and they are at risk of default. In general, borrowers must also occupy the house as the primary residence (no speculators), mortgage payments must exceed 31% of the borrower’s monthly gross income, and the loan does not exceed current loan limits as set in place by Fannie Mae and Freddie Mac.

If you think you qualify for a loan modification and you are ready to start the process, you have the option of negotiating the loan modification on your own. Working with a BBB accredited debt settlement company with experience dealing with loan modifications and other mortgage-debt-related issues, however, has many advantages. If you plan to contact a debt settlement company for help, gather together any income documentation such as pay stubs, recent income tax returns, all your mortgage documentation, and any documentation and information you have on other debts such as a car loan, student loans, and credit card debts. A debt relief expert may be able to help you determine whether or not you qualify for a loan modification, and he or she will then be able to guide you through the mortgage modification process in order to get you get the best and the timeliest results for your situation.

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