Before the downward spiral of the housing market, you may never have heard of the term, “loan modification”. These days, it is a hot topic that is broadcasted everywhere. Obama has a loan modification plan, mortgage companies are offering loan modication programs, and banks are into it, too. Does anyone really know or understand what “loan modification” is? As a real estate agent, I do but most homeowners out there know the term, have an idea of what it is, but wonder if it is a possibility for them.
Loan Modifications are a change to a loan contract between the lender and the homeowner. The whole purpose is to adjust the terms of the contract so that the loan is affordable for the borrower.
The biggest change due to the state of this economy with loan modifications is that the program has been redesigned to help homeowners that can afford their home but not their current mortgage. This means that the homeowner has the ability to make reasonable monthly payments on their home but their current mortgage payments are to high.
One key factor for a homeowner to be eligible for a loan modification program is that there needs to be the existent of a valid situation of hardship. A borrower must make sure they can prove the hardship and that it qualifies them to apply for a loan modification. Some examples of hardship include:
illness of a close family member dependant on you
loss of job (as long as there is proof you will be able to meet the modified payments)
reduced income
death of the borrower
death of spouse or co-borrower
military duty
medical bills
damage to your home
not being able to sell or rent the property
The biggest factor to become eligible for loan modification is to have the correct AND accurate paperwork to back up your hardship. You don’t only have to be able to afford your home and undergo a valid situation of hardship; you also need to prove it with proper documentation.
To sum up the loan modification process:
a) You must be able to afford the payments of a reasonable loan modification.
b) You must be experiencing some type of valid hardship.
c) You must be able to prove it.
Convincing your lender or loan servicer of the truth of those three factors is the most important part of applying for a loan modification. You must focus all your energy in making these three points loud and clear when you communicate with your lender, whether your are speaking on the phone or writing your hardship letter.
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