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4 Reasons to Consider Loan Modification


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TERMINOLOGY

Loan modifications are becoming a popular option for homeowners who can not make their mortgage payments. They are an alternative to foreclosure, short sales and even refinances. Because of today's market and the high number of foreclosures, lenders want to help you stay in your home so they do not have to deal with foreclosures. In order to see if a loan modification is good for you, you first have to know who qualifies and how you would benefit.

1. You Have a Hardship

First and foremost, if you have a hardship you should consider a loan modification. Hardships would be something unexpected in your life that has made it difficult to afford your mortgage payment that you once were able to afford. This would include a job loss, disability, medical condition or illness and a death in your immediate family. You will be asked to write a hardship letter outlining your circumstance for the lender. You will also have to show financial difficulty by giving copies of pay stubs and bank statements. You may receive a temporary rate reduction, a permanent rate reduction or a longer mortgage term. It will depend on what type of hardship you have, and how a loan modification will allow you to keep paying your mortgage.

2. You Have Negative Equity

If you owe more than your house is worth, than a loan modification may be good for you. You usually won't be able to do a traditional refinance if you have negative equity. Because you can't seek out another alternative, you can probably qualify for a loan modification. They may offer you a lower interest rate, or if you have an adjustable rate they may convert it to a fixed rate.

3. You Have a Sub-Prime Loan

If you have a bad loan, then the lenders are likely to refinance it. Sub-prime loans are the reason loan modification are in in place. There were so many poor loan products offered to borrowers, and because of this, foreclosures are very high. These loans have high defaults and they would like to lock you in with a better mortgage product. These would include adjustable loans, interest only loans and pick a payment loans.

4. You Are About to Foreclose

If you are in pre-foreclosure, then you should request a loan modification. Lenders do not want you to foreclose and may be willing to work with you. You will need to explain to them how a modification will keep you from a foreclosure now or in the future. Perhaps you lost your job and a temporary rate reduction will allow you to afford the payments while looking for a new job. Or maybe you have become permanently disabled, and a permanent reduction in rate would allow you to pay your mortgage on your new, fixed income.