Loan Modification Programs

If you’re behind on payments, or about to be behind on payments, loan modification programs can save your mortgage. Not everyone qualifies, and you generally have to be an exceptional candidate, but it can completely transform your financial situation if you are able to qualify. It’s always a conversation you should be having with your lender if foreclosure is a potential problem. Loan modification is often one of the best ways to avoid foreclosure and save your house, even while not being able to meet the original payments you agreed to.

Loan Modification Program Types

Lender Modification Programs

The majority of modification programs that will be relevant to your mortgage come from your lender themselves. Most major lenders have loan modification programs in place that are carefully calculated to provide a ROI without being too risky for the lender. If you qualify for one of these programs, this may be your best bet for loan modification.

Other Modification Programs

However, there are legitimate modification programs that work external to your lender. You can always ask your lender if they have a list of these. Some loan modification companies are able to offer different terms than your lender because they are structured differently and can take on risk in different ways.

Government Loan Modification Programs

At times of national emergency and financial crisis, the government has sometimes offered an affordable modification program that is boosted with government subsidies. At the time of writing, there are currently no broad-reaching government loan modification programs in place, with a couple of programs ending in 2016 and 2019.

But at the time that you’re reading this, there might be a new government loan modification program. If you’re not confident that you can work with your lender to get a home loan modification, you should definitely check to see if the government is offering assistance that might be useful for someone in your situation.

FHA Loans

If you’ve obtained your mortgage through the Federal Housing Administration, or FHA, you may qualify for a number of relief programs that help first time home buyers remain in their homes. There are forbearance programs and partial claim loans that can help you maintain your home and refinance pieces of it. If you’ve gone through the FHA for your mortgage, definitely check out their website for potential programs.

VA Loans

Veterans Affairs (VA) provides housing assistance for servicemembers and spouses, including mortgages that are backed by the department. There are VA programs that you may have access to if you went through this program, and you should consult your lender about your options.

What to Expect From Loan Modification?

Application

Loan modification usually requires a letter explaining why you are applying for modification and some kind of proof of the hardship. Proof of hardship could be financial statements, an unemployment letter, additional bills like medical payments, and more. A letter usually should be short and succinct. Explain why you need the modification to continue to make payments, and then explain why you will definitely be able to make payments if you receive the modification.

Extending the Mortgage

Most modification programs are not also forgiveness programs, which means that any payments that you don’t make right away will have to be made at the end of the loan. Government programs sometimes have forgiveness mechanisms set in place to avoid foreclosure and extended terms, but private solutions usually won’t forgive a single dollar off the loan. If you get a modification, you’ll be paying your mortgage for a longer period of time.

There are temporary and permanent loan modifications. You may qualify for temporary modification if you’re experiencing a short-term change to your financial situation, but you may get a permanent modification if you’re experiencing a lasting change to your finances.

What’s the Best Way to Get a Loan Modification?

The best way to get a loan modification is to move quickly and maintain constant communication with your lender. It will be tough to get a loan modification if it looks like you were unable to plan for the hardship that has befallen you. If will be easier to get a modification if you get out ahead of the problem and start talking to your lender before you’ve even missed a payment.

Speed is essential. You’ll also need to have a plan and some kind of financial stability. Lenders will not grant a loan modification if they think that they will need to turn around six months later and proceed with the foreclosure process. Loan modification is only good for both you and the lender if you can avoid foreclosure and the lender gets to still collect on the mortgage.