How to Restructure a Mortgage for Less Than Its Worth

Restructure your mortgage to reduce monthly payments.

It is discouraging when you owe more than a property's value. Job loss and other serious financial difficulties leave many people struggling to pay their mortgage payments. However, there are options for people with an underwater mortgage. Restructuring arrangements, referred to as loan modification programs, allow borrowers to secure a lower payment to reduce financial stress.

Instructions

1. Meet loan modification requirements. Loan modification programs were created to assist people with serious financial struggles. Add up total monthly debt payments. Divide debt payments by gross monthly income. For example, if debt payments are $1,800 and monthly gross income is $3,000, 60 percent of monthly income is allocated towards debt. According to MSN Money, if 55 percent or more of income is paid towards debt, you will likely qualify.

2. Call your lender and apply for loan modification. The lender will take an application over the phone. She will ask you about your current family income and for a list of debt obligations. Based on this information she will process your request.

3. Provide supporting documents. The lender may require recent pay stubs and debt obligation statements to support your application materials. Provide this information quickly to avoid delays processing your application.

4. Wait for a decision on your application. The lender will review your application and supporting information and approve or decline your request. If approved, she will restructure monthly mortgage payments to equal 31 percent, or less, of monthly income. For example, if your monthly income is $4,000, mortgage payments are reduced to $1,240 or less.

5. Sign an agreement with the lender. Review the new payment amount for accuracy and sign the document. If the agreement needs to be notarized, visit your local financial institution for notarization.

Tips & Warnings

• If you owe more than a property's value, ask about short-sales. With a short-sale, a lender approves a sales price equal to the market value of the home. For example, if a home's market value is $350,000 and you owe $400,000, the lender will accept $350,000 to pay off the loan and write off the $50,000 loss.

• Don't forget to review the modification term. Modifications aren't good forever. Once the agreement expires, mortgage payments will revert to the previous payment amount.

References

• CNN Money: Mortgage Help, Do you qualify
• U.S. News: Obama's Loan Modification Plan: 7 Things you need to know
• U.S. Department of Housing and Urban Development