Home Loan Modification: What Is It?

Home loan modification refers to the restructuring of mortgages for borrowers facing financial hardships, enabling them to pay off their home loan payments. In this arrangement, home owners work with their lenders to change the terms of their home mortgages, saving their homes from foreclosure. At the same time, lenders are able to recover their money in a restructured program.

Home loan plans fall under the US government’s Home Affordable Modification Program, which was unveiled in February 2009. This program was aimed at reducing the monthly mortgage payments of struggling home owners to sustainable levels. In view of this, home loan modification programs have to conform to the standards set by US government.

Mortgage modification is an effective tool for you if have fallen behind on your home loan payments and are faced with financial hardships. As the loan is restructured to make it more affordable, you are able to pay it off without losing your home or sinking into debt. Key aspects of the loan such as interest rates, monthly rates and any penalties incurred are changed, enabling you to pay off the loan from your available income. However, in order to enjoy all the benefits of mortgage modification, you need to qualify for one.

The following qualifications make you eligible for a mortgage modification.

One of the qualifications for home loan mod is that one must have originated his or her home loan prior to January 2009. This requirement was put in place in order to prevent opportunists from taking advantage of the program. You must also be the owner-occupant of your home. The other qualification for home loan modification is that you have to owe more than your home is worth. According to the US treasury department, a person with a mortgage balance which is higher than the home’s current value may qualify for home loan modification. Another qualification is that you need to prove that your current financial status has suffered significant hardship. This could be as a result of various conditions such as increased mortgage payments, medical bills or reduced income. At the same time, your monthly mortgage payments must exceed 31% of your gross monthly income.

Lastly, you need to prove that you can afford to pay the proposed monthly installments after the mortgage modification. Keep in mind that the reason for the modification program is to enable you to pay your loan, not to exempt you from paying it. In view of this, if you cannot afford to pay the proposed installments, you will not qualify for the home loan modification plan. This requirement ensures that people who knowingly took home finance that were beyond their means will not take advantage of the program.

In addition to the above mentioned qualifications, you also need the following information in order to qualify for mortgage modification. You need to provide information about your monthly gross income and assets. Further, you also need to provide information regarding your recent tax returns. You will also be required to provide account balances and monthly payments which are payable on all your credit cards. You should also present information on monthly payments and account balances of any other debts you may have such as car loans.

Finally you need a letter detailing the circumstances that led to the reduction of your income or increase in expenses. Once you have gathered this information, you should contact your lender in order to be considered for home loan modification. The lender will then assess your financial status in order to determine whether you qualify for loan modification.

You may need to hire legal counsel for guidance in the process, to help you negotiate for the best possible terms. You can get a list of approved housing counselors form the US Department of Housing and Urban Development just to be sure.