A mortgage loan modification is an adjustment made to the terms of your original loan that will help you obtain a lower monthly or biweekly mortgage payment. Most people who are suffering from a financial setback consider applying for a loan modification. But few people understand how loan modification works. What is involved in the process? While a mortgage loan modification is not the only option available, it can often be the best option for your situation. Below is a quick overview explaining how this loan modification process works.
What terms will change under a loan modification?
Typically, for the mortgage loan payments to be lower, your lender can:
- Extend the length of time to repay your mortgage, Adjust the term of the loan
- Lower the interest rate thereby allowing more of the monthly payment to reduce the principal balance
- Add any past-due amounts to the unpaid principal balance
- Postpone payments for an extended time
What to Expect When you apply for a mortgage loan modification
When you call your lender and start the application process, they will assign a specialist to investigate your case. They will evaluate your entire situation, including:
- The causes that led you not to be able to meet your payments.
- Your income, assets, spending habits, bills, and debts.
- Supplementary documents and forms to verify income, including pay stubs, savings accounts, investment statements, social security statements, and tax returns.
- The asset securing your mortgage i.e., your property value, the amount of your equity, the property’s condition, and whether the property is your principal residence.
After you have submitted all of the paperwork, the bank will review all documents and decide on your case. This process can take 30 days or more, depending on your lender and whether you have submitted the right forms. You also want to follow up with them to check the status of your application.
What is a Trial modification period?
Some banks will conduct a trial modification period, allowing you to have a modified mortgage loan payment for three months. It serves as proof of your ability to make the modified payment in the future.
You must submit the paperwork necessary for your trial payment plan, which is likely to be less than three pages long. It is going to outline the process of the trial modification plan, including your new payment amount and the due dates. It will also state that you are required to pay your monthly mortgage for three consecutive months. The paperwork should also disclose that upon completion and timely payments of the trial modification plan, you will be approved for a permanent loan modification agreement.
As a borrower, it is your responsibility to follow up with your lender to make sure your trial payment is received and applied to your account. After the permanent agreement is finalized, you can make your monthly mortgage payment that is stated by the final loan modification.
When does it make sense to apply for a loan modification?
In most cases, but not all cases, homeowners must have overdue payments or are at risk of not being able to pay. The borrower must show proof of financial hardship due to the loss of income or unforeseen events such as divorce, death, or disability. Most importantly, you will have to prove that you will be able to comply with your new payments on time once your loan has been modified. In specific cases, the homeowner does not need to be delinquent on their mortgage but must show financial hardship.
You should keep in mind that a loan modification is not the only option if you are having trouble keeping current on your mortgage. You can also consider a repayment plan, reinstating the loan, forbearance, a short sale, etc. It is, however, the easiest option to implement in a relatively short time and allows you the ability to keep your home.
Debt Rescue Law is a trusted partner for many borrowers and can provide more information about the loan modification program. Give us a call at (833) 707-1234 today for a FREE consultation to get you clear of your debts and keep your home!