What is a Loan Modification?
Loan Modifications are changes to your loan agreement. Your payments get more affordable, and you don’t have to default on your loan. Banks choose to offer loan modification programs because it is easier to work with you than to go after you.
How do I Get a Loan Modification?
To get a loan modification you generally have to ask. Call the bank and let them know about your financial situation. Just be honest and explain whether or not you’ll be able to make your payments. If they agree, you may qualify for a loan modification.
Banks have different criteria, so there is no way to know ahead of time if you’ll qualify for loan modification – you just have to ask.
What Types of Loan Modifications Do Banks Do?
There are several ways they can accomplish this:
· Refinance the loan
· Allow you to skip payments, and add those to the end of your loan
· Reduce the total amount of your loan (forgive principal)
· Reduce the interest rate charged
· Extend the loan term
What to Ask
To make the process smoother, be prepared when you request a mortgage modification. The bank will want evidence that you cannot make payments. Gather the following items:
· Monthly income, and detail of where it comes from
· Monthly expenses, broken down by category (mortgage, food, transportation, etc)
· Paystubs
· Bank statements
· Loan statements and agreements
If you present a snapshot of your financial situation, the bank can make a decision on your mortgage modification more easily.
How long does it take?
You should expect to spend several hours of your time requesting a mortgage modification. You’ll wait on hold when you call, you’ll have to present your case, and you’ll have to hunt down documents and forward them to the bank. This is no small task.
After you request a mortgage modification, you should expect to wait several weeks before the bank actually does anything. During that time, do what the bank tells you – for example, they might say that you have to continue making payments to qualify for the mortgage modification.
Mortgage Modification Helpers/Companies
Plenty of businesses want to help you request a mortgage modification. The price you pay for their services is steep – often as much as a monthly mortgage payment. You don’t need anybody to help you request a mortgage modification (your bank makes a decision based on your financial situation, not who is asking).
Furthermore, you’ll have to provide the same information to the helper as you will to the bank. Just call your bank first and ask what you need to do for a mortgage modification. If you want to pay somebody for their time and guidance, that’s fine – just be aware that you don’t have to.
Why do Banks Offer Loan Modification?
If you stop making payments, the bank has several options.
· Foreclose on you
· Attempt to collect outstanding balances
· Accept a loss through foreclosure or a short sale
· Watch you declare bankruptcy and receive little or nothing
None of these options are attractive to you or the bank. Your credit will suffer, and there’s a financial cost to the bank.
