1. What exactly is a loan modification?
A loan modification is a permanent change in one or more terms of a borrower’s home loan, allowing the loan to be reinstated, and resulting in a lower payment the homeowner can afford.
2. Can the lender include late charges in the Loan Modification?
According to HUD (US Department of Housing and Urban Development), the accrued late charges should be waived by the lender at the time of the loan workout. This varies depending on the type of loan, but you should always request a complete breakdown and description of all fees and penalties from your lender.
3. Can the bank require an interior inspection of the property if they have concerns about its condition?
Yes, the lender may conduct any review it deems necessary to verify that the property does not have physical conditions which might adversely impact the value.
4. How do I know if I will qualify for a loan modification?
The number one criteria your lender is looking at is your ability to make the new modified payment now and in the future. You’ll need to supply the lender with proof of your income and a complete and accurate financial statement detailing your income and expenses, to show them that, if granted the modification, you will be able to afford the new, lower payment.
5. Do I have to be currently delinquent on my payments to get a loan modification?
Most lenders are now accepting applications from homeowners who are not currently delinquent, but who are able to prove to their bank that due to imminent interest rate increases or other factors, they will no longer be able to afford the loan payment under the terms of their loan. It is advisable to contact your lender as soon as possible to start the loan modification process, whether you are delinquent or not.
6. What is an acceptable Hardship situation?
Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce/separation, loss of income, death of spouse, co-borrower or family member issues, illness, job relocation, or military service to be acceptable reasons to consider a loan modification. A compelling hardship letter is a very important part of a successful application.
7. Will a loan modification help me stop foreclosure?
Yes, that is the goal. By working with your lender to find a loan workout solution, your loan is brought up-to-date and the foreclosure process is halted.
8. Can my missed payments be added back into my new loan modification?
Yes, the missed payments can be added to the new loan balance and spread out over the term to allow the loan to be brought up-to-date.
9. Can I apply for a loan modification myself, or should I pay someone to represent me?
That is entirely up to you and your comfort level in dealing with your lender. There is also a financial consideration…most loan modification companies require a substantial up front fee. Whatever you decide, the first thing you should do is to learn all you can about the process, your legal rights, and what it takes to get your application approved.
10. So how do I get started to modify my loan?
Before contacting your bank’s loss mitigation department or a loan modification company, do your homework. Learn as much as you can about the loan modification process, so you can make informed decisions.