How to Apply for a Loan Modification?

Summary: Loan modification is one way to make your mortgage payments affordable without damaging your credit score. But you would be better off understanding the process before applying for one.

When your mortgage payments become unaffordable one best way to make them affordable is applying for a loan modification. This process is all about convincing your lender about the financial hardship that you are facing, and asking him to consider lowering the monthly payment to make it affordable. This can be done by decreasing the current interest rate, extending the term of the loan, or converting the mortgage from ARM to FRM.

Not all loan modification applications get the approval of the lenders. In fact most get rejected. Nevertheless, there are always loan modification counselors who can make it easier for you to understand the process and may be even negotiate on your behalf to make sure your loan modification gets approved. Most such professionals get in touch with borrowers directly through loan modification leads.

If there is one thing that qualifies you for loan modification it is your financial hardship. Here is a list of hardships that most mortgage servicers accept for loan modification:

• Loss of job of the borrower
• Death or Illness of the borrower or his family members
• Curtailment of borrower’s income
• Issues with property
• Failed business
• Divorce or marital separation
• Job relocation
• Incarceration
• Military duty
• Mortgage servicing problems

The Process of Loan Modification

Loan modification can take anywhere between three and twelve months to get approved. Hiring a loan modification counselor or a loan modification agency that comes to you via loan modification leads can make it faster. Nevertheless, you will still need to have a lot of patience and persistence.

There are a number of documents you may have to submit along with your loan modification application. Your loan modification counselor or the agency that comes to you via loan modification leads might advise you on these. Nevertheless, it is always better to gather all of these before beginning the process of loan modification:

• Financial statement: This is a document that helps your mortgage servicer get a clear idea about your monthly income and expenses. Be as honest as possible while preparing this document and collect enough evidence that can support the figures mentioned in this statement.
• Hardship letter: This is the most important document that can decide the fate of your loan modification application. It is always best for you to take the help of a loan modification counselor while drafting this letter. However, if you want to do it on your own, you will need to not only describe your financial hardship but also outline the events that have led you to such a situation. Be straight and to the point. Keep it simple and as brief as possible.
• Proof of income: Your mortgage servicer would like to verify your monthly income before approving your loan modification application. You will have to provide the necessary evidence in the form of:
• Monthly pay stubs
• Your latest quarterly profit and loss statement (if you are self-employed)
• Copies of statements or letters from your provider in case you are employed or disabled. This statement or letter should also state the duration for which you will be receiving the federal benefits to live. In case this is not available, you can produce two of your most recent bank statements to prove this income.
• Copies of divorce decree, separation agreement or any other agreement that states the amount you will be paid and the time when you will receive the amount in case you are receiving any alimony or child support.
• Tax authorization (IRS 4506T-EZ Form): Once you give this form, your lender will be able to get your most recent tax return from the IRS. You should ideally make copies of this form before you submit it to your mortgage servicer.
• Bank Statements: You will need to submit your bank statements for at least two of the recent months, while applying for a loan modification. This will give the lender a fair idea of your income and expenses and the way they are distributed every month. You may be asked to send these statements multiple times during the process as your lender may require it to take important decisions. Try not to get annoyed or frustrated.

Tips to help you along

Be punctual

Waiting to default on your payments may not be the right way to apply for loan modification. In fact it might push the lender towards filing for a foreclosure. The sooner you contact the loss mitigation department of your mortgage servicer, the faster you will be able to get your loan modified. Such prompt actions can talk a lot about the genuineness of your situation and your interest in paying back your loan.

Do your research

Although the loan modification agency or counselor who comes to you through loan modification live transfer leads might tell you all that you need to know about the process, you will always benefit by doing some research. Find out as much as you can about the loan modification sources such as Making Home Affordable Program, the Fannie Mae Streamline, and the Freddie Mac Streamlined Modification Initiative before you take your decision. Also check out a few samples of hardship letters and instructions about writing them.

Stay organized

Being organized is very important when pursuing a loan modification. You need to have all your documents such as your paystubs, bank statements, financial statements, tax returns (of two years) and recent mortgage statements, intact and ready. Keep detailed logs and tabs on status updates to make sure your loan modification is headed in the right direction. It is better you record each and every conversation you have with your mortgage servicer regarding your loan modification.

Whether you take the help of a loan modification counselor or agency that contacts you through loan modification live transfer leads or go on your own, it is important that you don’t take no for an answer. Be polite and respectful in your approach; at the same time remain assertive whenever you follow-up so that you can get a positive outcome.