Are You Behind on Your Mortgage?

What is a Loan Modification?

Loan modifications are ways that your home mortgage holder can make it easier for you to afford payments when you have gone through job loss or pay cuts. The way that a loan modification works can vary because the lender can lower the interest rates, re-write the loan with more attractive terms and some of them will lower the principal balance if it meets their criteria. 

Because of the high number of foreclosures, the lenders are more willing to come up with creative ways to help a homeowner better afford and keep their home. Some lenders will put the payments that are behind to the end of the home mortgage. Others will come up with additional ideas to get the loan current and give the borrower hope through extensions, adjustable rate mortgages and other means. The main idea behind the loan modifications is to keep the borrower from filing bankruptcy and ruining their credit, if it looks like there is a way they can become a good credit risk in the future, as the economy improves.

It used to be that homeowners would try to sell their home, when they lost a job, or were having a hard time affording it. Now the real estate market is so slow, that it is hard to sell a home and many areas have seen home values decline below what is owed on the homes. Some states have recourse and non-recourse loans, so it is important to know the laws that govern your state before making any rash decisions about abandoning the home and letting it go into foreclosure.

Through loan modifications, it is a win-win because the lender doesn't have to foreclose and try to sell your home in a poor real estate market, and you still have a roof over your head and your credit intact. This is especially helpful if it looks like you should be able to find a way to keep up with lower payments, such as a stable job that pays less than you were making. If you are employed, it is easier to qualify for loan modifications because the lender will do it to recoup some of their money. If this doesn't look feasible, then you may be refused if you ask for a loan modification.

The best way to find out if you can get a loan modification is to ask your lender. Their collection department won't necessarily offer it to you. If you ask, they will probably have you go through paperwork, that is similar to when you first purchased the home, but it is necessary for them to justify the loan modification, especially if they are considering a principle balance reduction.

The worst thing to do is nothing. If you are having financial difficulties, due to the loss of a job or some other unforeseen circumstance, sometimes all you have to do is ask and the lender will be willing to work with you. If you don't do anything, it will hurt your credit and the lender will be unwilling to do much for you at the very end of the foreclosure process, once they have incurred the costs associated with it.