Falling behind on your mortgage payments can be a difficult situation. If you’re struggling financially, a loan modification may help you avoid foreclosure by making your loan more affordable. The loan modification process can seem confusing and overwhelming, but breaking it down step-by-step makes it more manageable. This guide will walk you through the basics of applying for and qualifying for a loan modification program.
Getting Started
The first step is acknowledging that you need help. Assess your finances honestly and determine that you won’t be able to make your regular mortgage payments in the foreseeable future. Contact your mortgage servicer – the company you make your payments to – as soon as possible, even before you miss a payment. Explain your financial hardship and request information and an application for their loan modification programs. Most major servicers participate in government modification programs aimed at helping struggling homeowners. Complete and return the application along with the required documentation as soon as possible.
Completing the Application
When completing the loan modification application, provide thorough details of your hardship. This could involve the reduction of work hours, unemployment, medical issues, or other qualifying circumstances that have negatively impacted your finances. Include supporting documents such as letters from employers. Fully disclose your household income from all sources like salaries, commissions, alimony, or child support. You’ll also need to verify your expenses with documents like bank statements, utility bills, and tax returns.
The Review Process
After you submit your complete application package, your servicer will conduct an internal review. Their goal is to verify your income, expenses, and hardship to determine if you qualify for assistance. This may involve requesting additional documentation, so respond promptly to any requests. Next, they’ll analyze affordable and sustainable monthly payments based on your verified finances. Make sure to contact your servicer if your situation changes during this period.
Trial Period
If your eligibility review is positive, the next step is a trial period. Here, you make the new reduced payments according to the potential loan modification terms for 3-4 months. These payments must be on time. This trial allows you to demonstrate you can realistically afford the modified amount before it’s permanently approved. It’s also a qualifying factor, so timely payment is extremely important. Within 30 days of completing the trial, your servicer must provide a written decision on permanent modification. Make sure to get confirmation in writing if approved. If denied, they must explain why and if you can request reconsideration.
Ongoing Communication
Once permanently modified, consistently make on-time payments as agreed in your new loan terms. But changes may occur requiring ongoing contact with your servicer. Notify them promptly about any improvements or new hardships affecting your finances. For example, changes in income from a new job like technician, men’s personal stylist, or more could lead to payment reduction. Loss of income like unemployment may affect your ability to pay and warrant applying for unemployment forbearance. Likewise, let them know right away if you miss a payment as servicers can work with borrowers in short-term financial emergencies. Keep lines of communication open to maintain the modification and keep foreclosure at bay.