It is challenging for people to ask for financial help when they need it. However, many people go through difficult times in their lives where they fall behind in their mortgage payments. If you fall several months behind on your mortgage payments, have been turned down for a loan refinance, and are facing a long-term financial hardship, you should consider asking your lender or loan servicer for a loan modification.

Is a Loan Modification the same as Refinancing? 

No, a loan modification is an agreement between you, the borrower, and your lender to change the terms of your mortgage loan. Homeowners seek a loan modification to pay a lower amount on their monthly mortgage payment. The reason why lenders would agree on a lower monthly payment is that it’s more beneficial to them than to foreclose (your home, which would cost the bank quite a bit. With a loan modification, the terms of the original loan are changed to an amount that is more affordable for the borrowers to pay back. A revision of the loan could be accomplished in one of three ways: (1) reduced interest rate, (2) terms of the loan are stretched out increasing the number of payments, or (3) the lender reduces the outstanding balance due.

How do I qualify for a loan modification? 

Eligibility for a loan modification is based on guidelines developed by the individual lender. Most lenders have similar criteria that they consider when evaluating whether to modify a borrower’s loan. Qualifying for a loan modification program depends on:

  1. Your financial status. The lender or loan servicing company will review your income, assets, financial statements, other debts, etc.
  2. Evidence of a valid financial hardship. Homeowners will be required to provide documentation or proof to show that you are unable to make your mortgage payment due to financial hardship. Explaining the reasons behind the rough situation you’re going through that has impacted your ability to repay your loan.
  3. Your ability to pay. You need to have some proof of a regular source of income. Perhaps you were unemployed but recently were hired at a new job. 

What documentation is acceptable proof of financial hardship and the ability to pay?

As part of your loan modification application, your lender will likely request a list of specific documents that will provide a picture of your financial situation. The following items are typically part of the application process:

  • Two to three years worth of tax returns
  • Mortgage statements
  • Recent pay stubs
  • Financial worksheet showing all sources of income and expenses
  • Copies of other sources of income such as Social Security, disability income, alimony, and child support.
  • Copies of credit card statements, other loans or obligations
  • Bank statements for the past year 
  • A letter of hardship or an affidavit 

How to Write a Letter of Hardship or an Affidavit

In a letter to the Lender, you will briefly state the facts regarding how you ended up in a situation that resulted in your not being able to make your mortgage payments. Be sure to provide the facts honestly and clearly. Stick to the facts. You don’t need to add personal opinions or lengthy descriptions or details that are not relevant to why you could not make your mortgage payments. Remember that you are writing to a financial lending officer that you want to approve your loan modification, so keep it brief and to the point. Tell the negotiator of your hardship and tell them that you are no longer able to afford your loan payments. Explain that you have no assets with which to continue making payments. You should also state that you are trying to avoid bankruptcy. Do not forget the property address, the date, your signature(s) and the loan number on your hardship letter.

While not everyone is approved for a loan modification, most people that can demonstrate a valid financial hardship situation and a means to make a reduced loan payment can receive relief from foreclosure. A loan modification can give you a new start by resolving your delinquency status, providing you a monthly mortgage payment you can afford, allowing you to stay in your home and begin to rebuild your credit score.  

If you are struggling to make your house payments and you’re facing foreclosure, Debt Rescue Law can help you in applying for a loan modification. Call (833) 707-1234 for a free consultation.

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