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WHAT DO I NEED FOR A LOAN MODIFICATION
The past year has brought hardships to nearly all families and new challenges for homeowners. The banks have provided long forbearances but these are likely to end soon. One of the most popular options for most homeowners will be seeking a loan modification. The idea would be to lengthen your loan term and pay off the missed amount at the end of the extended loan term, with additional mortgage payments. This may also result in new and more favorable interest rates. A loan modification allows homeowners to negotiate any of the terms of their loan and to secure terms that are more favorable for them. Unlike forbearance agreements or even deferred payments, loan modifications are more appropriate for homeowners who will deal with financial struggles for a longer period of time. A loan modification is also not a brand new mortgage, as a refinanced mortgage is.
What are some possible benefits of a loan modification?
- Lower interest rates. If you qualify, the servicer may be able to lower your current interest rate in order to make your payment more affordable and a more beneficial mortgage in the long term.
- Fix interest rates. Along with lower interest rates, you may qualify to move from a less favorable adjustable rate mortgage to a fixed rate mortgage. This also has the benefit of allowing you to plan for the long-term secure in the knowledge that your mortgage payment will not vary or gradually increase over the years.
- Extending of the loan or postponement. You may find that you are eligible to either postpone payments for a period of time due to hardship or to extend the life of the loan in order to reduce your current monthly payment.
- Principal Reduction. Though this is not as common, you may be eligible to reduce the principal on the loan
What is the next step?
Now that you have decided to apply for a loan modification, what do you need? The first item will be a loan modification application. Your specific servicer will likely have their own required form so make sure to contact them and request a blank loan modification application.
As you begin to review the application you will see a list of documents needed to be supplied in support of the application. Some of these common documents include:
- an income and expenses financial worksheet
- tax returns (often, two years’ worth)
- recent pay stubs or a profit and loss statement
- proof of any other income (including alimony, child support, Social Security, disability, etc.)
- recent bank statements, and
- a hardship letter or affidavit.
Feel free to contact us now for a free consultation in order to discuss your options.
