Since the Federal government has allocated $75 billion dollars to subsidize lenders who offer a loan-workout to their borrowers and with President Barrack Obama's Homeowner Stability and Affordability plan put into motion, loan modification has become a popular option among struggling homeowners. Here are some frequently asked questions about loan modification.
1. What is it? A loan modification is permanent change in the terms of a borrower's home loan. It allows for the homeowners loan to be restructured and results in a lower monthly payment.
2. Do I qualify? You qualify for a loan modification only if you can prove your circumstance of hardship. This usually involves supplying the lender with proof that you do have income enough to pay the payments yet you can afford a lesser amount. Eventually if you are given a loan modification, the lender is only interested in knowing if you can keep up with the new payments hence requiring proof of how your planning to keep up with your payments.
3. What is a Hardship and how can it be accepted? All struggling homeowners have their own unique circumstances that made them not able to pay their home loan. An example of an acceptable hardship would be loss of a spouse, illness, job relocation or unemployment. To state these circumstances to your lender, you would need to write a brief, yet compelling hardship letter included with your application for a loan modification.
4. Can a loan modification help in avoiding foreclosure? In most cases, it is optimal solution to stop foreclosure. If one works in good way with their lenders towards finding a good loan workout, one can prevent an imminent foreclosure on the property and avoid losing equitable rights to it.
5. I have already missed payments, what will happen to them? You missed payments or arrears can be added to the new loan balance and spread out over a loan term that you can afford or they can be eliminated entirely with all fees the fees the you have accumilated.
6. Who represents me? A loan modification application can be applied for by you, however if you are unsure of how to go about applying for one, you might need help. A loan modification company or your bank's loss mitigation department may help you seek advice. Choose the option you are more comfortable with. Some loan modification companies require a small fee. You should however study in detail about loan modification from different resources online and otherwise to grasp the true nature of process first. The HUD website should help with that.
Once you think you know enough about loan modification by reading documents and articles online, or by asking a friend or person who has gone through one, you can safely apply for a loan modification. But be sure, loan modification is a convenience and you should not settle for the first offer you get from your lender, you need to be persistent and thorough with the complete process to get good results.