What is a loan modification?

This is also referred to as a  loan workout and it is when your current lender agrees to modify (change the terms) of your mortgage in order for you to afford the monthly payments and avoid foreclosure.  Your mortgage servicer generally will only lower the interest rate and possibly extend the term of your loan.

Principle reductions rarely happen. So, if you’re just looking to knock your $500,000 mortgage down to $300,000 because that is all your home is worth, it’s probably not going to happen!

How do I know if I qualify?

A mortgage modification generally occurs when both parties (borrower and lender) to a problem loan mutually agree to workout the issues by creating new and better loan terms. The hope is that the new improved mortgage will enable to the borrower to meet their obligations and avoid foreclosure.

The determining factors that your lender will look at are:

1. Nature of Hardship Causing Your Mortgage Problems
2. Ability to pay
3. Amount Owed
4. Equity in the property
5. Future financial situation
6. What is better for them? To foreclose or pursue a loan workout with you and or modify your loan. Meaning which approach will best benefit the lender in the long run.

Bottom line, you have to have the ability to pay and some income coming in. If you don’t, then most likely your lender will suggest a short sale.