Tips for Requesting a Home Loan Modification


Over the past few years the housing bubble and overall poor economic conditions have led many people to have mortgage payments that are beyond their financial capacity. While many people are forced to decide whether or not to stop making payments and foreclose on their home, many could benefit and save their home by working with their mortgage lender to receive a home loan modification. While many banks are willing to give out a home loan modification to qualified borrowers, the approval process can be difficult and confusing. Luckily, there are several tips to follow which can make obtaining a home loan modification easier.

The first tip in getting a home loan modification is to understand the actual state of your finances. You will need to understand your total net income as well as all your expenses including your mortgage, auto loans, student, loans, alimony, and any other recurring expenses including basic living expenses. From here you should be able understand what your monthly cash flow shortfall is and how much of a mortgage payment break you will need.

The next step in getting a home loan modification is to contact your lender to explain your situation. You will most likely need to work with a mortgage loan workout specialist in order to expedite the modification process. You should explain to the mortgage specialist what your situation is and how much of a monthly payment reduction you need. You will also need to explain why you are in the position that you are in and why you feel you could still afford a lower payment. If the bank does not feel that you could afford the lower payment, then they will not be willing to modify your home loan. Generally speaking, the bank will not think you could make the housing payment if your total monthly housing payment exceeds 33% of your gross monthly income. Convincing the bank of your need for loan modification may take weeks or months. This may require you to submit plenty of financial documents and speak with various representatives of the lender.

Once you have convinced the bank to offer you a home loan modification, the next step is to work with the bank to develop a plan of how to modify your loan. There are various plans available to borrowers, each of which has different effects on the banks profitability. The first way that a bank will attempt to modify your loan is by offering you a lower and market interest rate. With rates as low as they are, this could save you hundreds of dollars per month.

If the mortgage rate reduction does not result in a low enough of a payment, the next way a bank will try to reduce your payment is by re-amortizing your loan. If you have paid down a big portion of your mortgage debt, then re-amortizing the loan over a new 30 to 40 year period could save you a significant amount of money each month. The third alternative, which banks try to avoid, is to refinance your mortgage temporarily into an interest only mortgage or forgiving a portion of the principal balance.

While home loan modification could save a significant amount of money over time, borrowers need to keep in mind that modifications come with various different costs. First, banks will charge a borrower closing costs and fees that could easily cost over 1% of the mortgage loan balance. Many mortgage loan modifications are also sent to the credit bureaus, which will result in a significant negative mark of the borrower’s credit report. This negative mark could take years to recover from and will prevent the borrower from obtaining the best possible interest rates in the future.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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