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Loan Modification Made Easy

If you ever listen to the radio or watch the news, then you have heard the term "loan modification." You may have wondered exactly what this is and whether or not it might be beneficial to you or if mortgage refinancing might be the way to go. When a bank restructures the terms of a non-conforming loan to lower the monthly payment so that the borrower can afford the payments more easily, that is a loan modification. If you have had unforeseen circumstances that have caused you to fall behind on your mortgage payments, such as a layoff from a job, you may be eligible for a loan modification program. On the surface, this sounds like a great idea, but it can be quite a bit of work to get. This option is not for everyone, but may be right for you. 


First of all, you must understand that if you are current on your house payments, you cannot apply for this program.  You must be far enough behind in your monthly payments that you will not be able to make up that difference before you can request a loan modification.  The bank will look at the situation after you have made the request and will decide if it will save them more money to do a loan modification or to foreclose.  They know what it costs to do a foreclosure and understand that the house often sits for a period of time and continues to cost them money after the foreclosure.  If they feel that modifying the loan will cost them less than the foreclosure, they may be willing to agree to it.  If the bank decides that foreclosure is in their best interests, they can deny the request for modification.  Basically, the ball is in their court. 


If you are a borrower who can't make your house payments because you chronically spend more than you earn, this is not a program for you and you would not be eligible.  You may do better with a mortgage refinance, even if you are currently in a bad credit mortgage.  You are also not eligible if you are upside-down in your house due to market fluctuations.  A loan modification is only for the person who has had special hardships such as a job loss, a death of a family member, or a major illness that caused them to get behind in payments. 


You must be employed, meet the program guidelines, provide the necessary documentation for a loan modification.  You will also have to go through and approved government counselor to be sure you qualify and that this type of loan would actually benefit you.