Some borrowers that are having difficulty making their monthly payments may be under the impression that if they apply for a loan modification, the lender will usually approve it. A borrower has to qualify and complete several steps before a lender will consider granting a loan modification. The chances of having a loan modification approved can significantly increase by having everything that the lender will likely request ready to be submitted.
How to Qualify for a loan modification
Each lender has its standards to approve a loan modification, but most require at least the following:
- You must be suffering financial hardship. Financial hardship is a longer-term situation like loss of a job, serious illness, a divorce, excessive debt and or medical bills, or something similar. Short-term dips in income like a salesperson having a low sales period or a home that has lost value are not considered hardships.
- The property securing your mortgage loan must be your primary residence. Lenders generally will not consider a loan modification on a second home or rental property.
- You need to be able to prove you cannot meet your current mortgage payments. If you have money in an investment account that is enough to make at least a few mortgage payments, a lender will not likely approve a loan modification. If you are making payments on a spa membership or a luxury car, a lender will assume that you could reduce your debt burden by tightening your belt and expect you to take that step before a loan modification is considered.
- You must show that you can make the payments on a modified loan. If you are unemployed and your spouse does not work, and there is no other source of income, you have no means of making a loan payment even if it is modified.
Steps to Follow to Ensure Your Application gets approved
- Complete the Package
Apply for the loan to be modified as soon as possible. It is better to apply before you are too far behind on payments; this is since the loan process itself can take time. When you complete your “loss mitigation” application, there will be specific information that will be requested. Ensure there are paycheck stubs, a hardship letter, and a budget along with any other documents the lender is requesting. If any documents are missing or incomplete, it will cause a delay in the application being reviewed.
- Send in All Items the Lender Is Requesting
The biggest reason behind a lenders’ decision to deny the loan modification is usually due to a borrower not sending in all the requested documents. Examples of what a lender may require in processing an application would consist of: a financial worksheet, pay stubs, bank statements, information involving all of the assets in the home, tax returns, as well as a hardship statement.
- Label Your Documents
Lenders receive a large number of documents every day. It would be easy for your paperwork to get lost if it is not correctly labeled. Lenders suggest having homeowners put their names and loan numbers on every piece of documentation submitted. Be sure to confirm that all documents have been received.
- Ask Questions
Ask clarifying questions to your lender about what documentation is needed to get the application processed. For example, not all individuals are paid bi-weekly, so if there is a situation where they are requesting two paystubs, then it is best to clarify if they want the last two or if they are asking for a full month of paystubs. Simple misunderstandings can cause delays in the process if you do not ask the clarifying questions upfront of what the lender is wanting.
- Stay in Touch
Make sure your application keeps moving through the approval process by keeping in constant communication. Reach out to the lender at least once a week to check on the status of your request. You can request status updates and confirm whether the application is complete, if further documents are required, as well as go over any circumstances that may have changed since the time the application was submitted.
If you are struggling to make your house payments and you are facing foreclosure, Debt Rescue Law can help you in applying for a loan modification. Call (833) 707-1234 for a free consultation.