Loan Modifications are possible, and can help keep your home. If you have recently gone into foreclosure or have major debt issues, then a loan modification might be right for you. Modifying your loan can reduce your overall balance, decrease your interest rate, and help you catch up to help from further damage to your credit.
There are few steps to complete this process. The first is to consult an attorney. See what your options are and what legal advice they can give you. Most initial consultations are free, so you shouldn’t be nervous. A bankruptcy attorney will be familiar with obtaining a loan modification; which will make the process less stressful.
The next step is writing a letter of hardship explaining why you defaulted on your payments. Make sure to be consistent with timing for the reasons why you were unable to pay. For example, if you lost your job in September but stopped paying in July, then being laid off is not the initial reason you fell behind. If your company downsized in July, cut your hours in half, which lead to being laid off; then this is your reason. The lender will be more sympathetic toward you as long as you are honest and consistent in events.
The third step is to gather all of the necessary paperwork. Each lender may have different requirements, but below is a list of general documents you will need to have.
- From the past two years:
- Tax Returns
- W2 forms or Income statements if self-employed
- Pay stubs
- Bank statements
- Other documents:
- Mortgage statement
- Property tax statement
- Homeowner’s insurance
- Second mortgage information
- Monthly income and expenses
- The total amount of debt you hold
You will also need to have patience. This is a process of calling lenders and negotiating a new loan amount. Most of the time the first offer the lender will provide will not work with your budget. Also, if the original lender has sold the loan, there will be middle men your attorney or you will have to go through.
This process can take several months before an agreement is made.
If you want further information follow this link to the Making Home Affordable Program. It has great information and a quiz that will help you decide if a loan modification is right for you.
- Making Home Affordable: https://www.makinghomeaffordable.gov/pages/default.aspx
Remember to honest with the attorney, your creditors, and yourself. Your goal is to find something that works for both you and the lender, so you can keep your home and start to rebuild your credit.