What to Expect During a Loan Modification
Homeowners experience foreclosure for many reasons. However, when the threat of foreclosure is near, you can stop the process by pursuing a loan modification. Loan modifications help you restructure your existing mortgage loan to create affordable monthly payments. The federal Making Home Affordable program offers homeowners the option of pursuing a loan modification on primary residences.
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Proposal
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To apply for a loan modification, you can prepare your household budget along with copies of bills and expenses or consult with a United States Housing and Urban Development-certified foreclosure counselor to get help. A foreclosure counselor can help you avoid wasting time during the foreclosure process by applying for a modification when your financial circumstances don't match the minimum requirements of the program. The more time that lapses during foreclosure, the harder it is for the lender to reinstate your mortgage loan. Alternatively, if you are considered eligible for a loan modification, a counselor can help you pinpoint the documents necessary to quickly present a proposal to your lender.
Income
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In order to be seriously considered for a loan modification, you must have a verifiable source of income. Income can be documented using copies of your pay stubs, or tax returns if you are self-employed. Copies of recent bank statements may also be required for self-employed homeowners. When you submit your loan modification proposal, your documentation should be included with your proposal.
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Financial Hardship
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Lenders analyze your household budget and income to determine whether you are experiencing financial hardship. If your mortgage payments are not more than 31 percent of your gross monthly income, you are not eligible for a mortgage loan modification through Making Home Affordable. The program seeks to help homeowners gain financial stability through modified payments, but homeowners must have a reasonable budget and income to qualify for the program. If your income illustrates that you can afford the monthly payments, but that you have surplus debt or expenses, your mortgage loan modification will be denied.
Trial Period
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Once you are approved for a mortgage loan modification, you must undergo a trial period before changes become permanent. Lenders use trial periods to determine if the new terms on your mortgage loan modification are appropriate for your monthly budget. During your trial period, you must make payments in full and on time. Missing a payment during your modification period means rejection from the program. Making Home Affordable participants generally receive a 40 percent reduction in monthly mortgage payments. If you are unable to make a payment for almost half the amount of your mortgage, you may need to consider mortgage assistance options for people with no income to avoid foreclosure.
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