If you’re falling behind on your mortgage and cannot qualify for a refinance or an alternative payment plan, it is time you negotiate for a loan modification (mortgage modification). This is where you can work with the lender and get your loan terms and conditions modified so that you pay off the loan comfortably. The lender may either lower your mortgage rate thereby reducing your monthly payments or extend the loan term and make sure your dues are added to the loan balance.
The very first step in loan modification is to contact your lender or the current mortgage servicer to whom your lender has conveyed the servicing rights. But prior to contacting the lender or servicer, make yourself aware of the 3 things that decide whether you will qualify for loan modification. These are:
1. Your affordability: Lenders want to make sure that borrowers are not taking advantage of loan modification, that is, they are not applying for it even though they can still pay. This is why you need to prove that you simply cannot keep up with the payments. So, you need to explain your exact financial situation and provide data on your property value and how much you can afford to pay on your home. Here’s what you will need to have with you.
1. Monthly income and source
2. Paystubs
3. Monthly expenses in detail
4. Bank statements
5. Loan agreements
What you need to do here is, prove that you cannot afford the payments and it is certainly going to help your situation if you opt for a loan modification.
2. Your home equity: This is an important factor based on which the lender may or may not modify your loan. If you have enough equity in your home to pay off mortgage dues and foreclosure expenses, then the lender is likely to consider foreclosure as a low-cost solution.
However, there are some lenders who inflate your home appraised value when home prices are on a decline. But if you’re aware of property values or recent home sale trends in your area, you can get an idea of your home equity and thus avoid inflated appraisals.
3. Modification costs: Lenders prefer to minimize the costs when it comes to modifying one’s loan. However, mortgage modification is carried out by experts and lenders have no other option but to spend more when it comes to expanding their number. This is why some lenders do not respond quickly when they receive a loan modification request. So, here’s where you need to be active and negotiate in the best possible way.
With loan modification you can avoid a loan default as your payments become affordable. However, make sure you understand the modified terms and conditions in order to avoid further problems in your mortgage.
