When to Apply for a Loan Modification

You might receive a loan modification from your lender.

A mortgage crisis and other accumulated debt may cause you to lose sleep at night. When you are unsure of the best financial remedies, you need to get some help. For any concern that you have about making your mortgage payment, you should immediately place a call to your lender to discuss your situation and available options.

Payment Increase

Payment increases may result from an adjustable-rate mortgage. Some loan products can adjust monthly, such as an option ARM, quarterly or annually. A higher interest rate will increase your mortgage payment, and subsequent rate adjustments could reduce your ability to afford your home. Most lenders will send a notice that informs you of interest rate changes. You should contact your lender after reviewing your new payment requirement to discuss a loan modification for terms that you can manage.

Excessive Debt

If you are under financial pressure due to excessive debt, you may benefit from a counseling session with local experts. A housing counselor might present several options to help you obtain financial relief. Counselors who are recommended by the U.S. Department of Housing and Urban Development may seek government-sponsored programs for which you qualify or seek other resolutions from your loan servicer to help ease your mortgage payment. You can speak with your mortgage lender about your debt and apply for programs that might modify your loan terms.

Reduced Earnings

Reduced earnings could certainly present financial hardships for families who maintain a fairly strict budget. Reduced hours at work or the elimination of your spouse's job would lower your household income. Call your lender before your mortgage payment or other bills fall too far behind. You will need to explain your reason for requesting a loan modification. Write a letter that provides an overview of your financial situation. Provide proof of your spouse's reduced earnings, as well as documentation to reflect job loss, such as unemployment documentation or a final pay stub.

Loss of Income

A job loss or scenario that leaves you temporarily laid off can result in a loss of income. You should call your mortgage lender to discuss loan modification options for unemployed individuals. Your lender may suspend your current mortgage payment for three to six months or reduce your mortgage payment to a level that is manageable, based on your unemployment compensation or severance pay.

References

• Federal Trade Commission: Mortgage Payments Sending You Reeling? Here's What To Do
• The New York Times: Negotiating Better Terms For Mortgage; Ron Lieber; November 2008

Resources

• U.S. Department of Housing and Urban Development: HUD Approved Housing Counseling Agencies