Understanding Loan Modification
Just what is loan modification? What does it do? How can it help you? You’ll find the answers to these questions below so you can take back control and put yourself on the road to affordable payments and financial security.
DEFINITION of ‘Loan Modification’
A modification to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan.
Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.
INVESTOPEDIA EXPLAINS ‘Loan Modification’
A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.
Expert Tips To Keep You Safe
For many, trying to modify a loan agreement can be challenging to say the least. For most of us, very few things carry as much emotional weight as our financial lives, and getting some help from experts who have been there before can help provide the peace of mind you’ve been missing. Below you’ll find some expert tips to clear the way for your loan modification and help you make a stressful time a little easier.
Getting a mortgage loan modification might seem like a quest only a mythic hero could achieve.
After all, the ranks of those who’ve lost homes in foreclosure dwarf the number of homeowners who’ve received mortgage help.
Meet Lisa Langlois, mythic hero.
Langlois, a single mom, actress and homeowner in Santa Monica, Calif., suffered “a series of unfortunate events that all happened clustered together.”
Find the best mortgage ratesBankrate can help you find the lowest available mortgage rate.First, she was served with divorce papers. Then she was loaded with medical bills, despite having two health insurance policies, after an SUV struck her son.
Caught in a financial undertow, she turned for help to the nonprofit Los Angeles Neighborhood Housing Services. The organization eventually helped get her home loan modified.
The seemingly mysterious nature of who qualifies for a loan modification is legendary among housing counselors. But these experts say there are ways homeowners can better their chances.
Following are housing counselors’ tips for getting a mortgage loan modification:
Complete the package.
Homeowners need to submit paycheck stubs, a hardship letter, a budget and any other documents the loan servicer wants. If even one document is missing or outdated, the entire file will drop to the bottom of the pile
Make sure you know exactly what to provide to servicers. Servicers often request two paycheck stubs on the assumption that two paychecks represent one month’s income.
But a homeowner who is paid weekly, bimonthly or monthly may have to submit more or fewer paycheck documents. Similar misunderstandings about other documents can be equally problematic.
Would a loan modification be right for your financial situation?