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Steps to Applying for a Loan Modification

When you find yourself facing the reality that you can no longer afford to make your home mortgage payments, it is only natural to wonder what options may be available to you. One option that can help you in avoiding foreclosure or bankruptcy is loan modification. This method makes it possible for you to lower your existing interest rate and often cut your mortgage payment, making it easier to afford your mortgage.

Before applying for a mortgage loan it is important to recognize that the lender will review your entire financial situation in order to arrive at a decision regarding whether to grant a loan modification. Therefore, it is important to make sure you have all of your documentation gathered in advance.

First, you need to make sure you have a financial statement, which is a worksheet that details your monthly income and expenses. It is imperative that this information be accurate because leaving out information can result in having your request for a loan modification either delayed or denied. When you make a request for a loan modification, keep in mind that the lender can and will pull your credit and will find out if you have other debts that you are paying or responsible for, so it simply does not make sense to leave anything out of the financial statement. It will only hurt you in the end.

You will also need a hardship letter. The hardship letter is a letter which you will write and which details the circumstances that have resulted in your mortgage no longer being affordable. This letter is critically important. It should be no more than two pages and should be concise and to the point.

In addition, you will need to provide proof of income that includes proof of your salary for the last two months if you are on salary or earn an hourly wage. If you are self-employed, you should be prepared to provide quarterly profit and loss statements. If you are not employed, provide proof of unemployment compensation, Social Security or disability benefits. You should also provide proof of alimony and/or child support that includes a copy of the divorce decree, separation agreement or any other documentation that details how much you receive. Other documentation you will need includes copies of your bank statements for the last two months.

After you have gathered all of this information, you will then need to contact your lender and speak to the department that is handling your loan. When you make a request for a loan modification, keep in mind that it can be a time consuming process. You should not expect a decision overnight.

You should also be prepared for the fact that many lenders will not even consider granting a loan modification if you are not actually behind on your mortgage payments. If you are current on your mortgage payments, the lender may have difficulty in recognizing the situation as being a hardship. Of course, this is not to say that you should wait and become behind on your mortgage payments in order to try to work out a loan modification because there is no guarantee that you will be approved, but is important to recognize that many lenders simply are not willing to make a modification available if you are not behind.

Along those same lines, you should not wait until the situation becomes desperate before you ask for a loan modification. If you are already 60 days or two months behind on your loan payments, the time to ask for help is now before things get worse. Once you hit 90 days or you are 3 payments behind, you will often be considered to be in default and at that point you may be at risk for losing your home entirely to foreclosure.

The good news is that you may qualify for a loan modification through the Making Home Affordable program. There are requirements which do apply in order to be eligible for the program, but if you own a home that is your primary residence and you are having trouble making your payments, it's worth considering. You can find more information at Making Home Affordable.

Keep in mind that there are now many companies which specialize in assisting homeowners in obtaining a loan modification for a fee, but for the most part these companies are not able to do anything or provide any service that you are not able to do on your own. We can connect you with specialists that could help you modify your loan here.



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