How to Apply for a Federal Loan Modification
If you're having difficulty making your mortgage payments and don't qualify for a refinance, you might consider a federal loan modification. The federally-sponsored Making Home Affordable Program was created to help troubled homeowners stay in their homes and avoid foreclosure. Learn what steps you need to take to apply for a federal loan modification.
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Things You'll Need
- Copies of your recent mortgage statements
- Current income statements
- Statement of financial affairs
Instructions
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Determine your eligibility. To pre-qualify for a federal loan modification, your home must be your primary residence, your mortgage must be less than $729,750 and have originated before January 1, 2009. The payment for your first mortgage must be 31 percent of your gross income and you must have a demonstrated financial hardship.
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Determine if your lender or loan servicer is participating in the Making Home Affordable program. A list of participating loan servicers is listed on the program's website. Lenders whose loans are guaranteed by Fannie Mae or Freddie Mac are required to participate.
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Contact your lender and notify them of your financial hardship. The lender will ask you about your current financial situation, income, and assets. They will determine if your mortgage payment meets the thirty-one percent requirement and complete a value test which will determine if you qualify for a loan modification. The value test determines whether the new loan will be of greater value to the investor.
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If you pass the value test, meaning the value of the new loan would be greater to the investor, then the lender will offer you a loan modification. If you choose to accept their offer, you are required to submit to a three-month trial period wherein you will make regular payments to the lender. If you can't make payments in the trial period, you will not be eligible for a federal loan modification.
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Upon completion of the trial period, your modification is deemed approved. You will need to sign the modification agreement and a statement certifying that information given your financial situation is true. Continue making your new payments to the lender as scheduled.
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Tips & Warnings
If you don't qualify for loan modification, you may need to consider short sale as an alternative to foreclosure.
Be truthful in any information you provide to the lender as providing false information is a violation of federal law.
Currently, FHA and VA loans are not included in the federal loan modification program.
If you choose to use a loan modification company, learn how to look for scams and avoid fraudulent companies.
Resources
- Photo Credit respres from flickr.com
