Loan modifications are a great tool for resolving mortgage debt and avoiding foreclosure, but they aren’t as easy as you may think. In fact, there is much to learn about mortgage modifications before ever requesting one with your lender.
A loan modification can lower the monthly payment in several ways. First, lenders may lower the interest rate on the loan or the principal payment due each month. The life of the loan may also be extended, spacing out the payment and reducing the amount required each month. Other options including waiving delinquency fees, temporarily lowering payments or changing the some of the loan conditions.
One of the most difficult aspects of a loan modification is gaining approval from the lender. Most lenders have strict qualification requirements that could exclude homeowners in need. In general, loan modifications are reserved for homeowners that can prove financial hardship. Borrowers may need to demonstrate that they cannot afford to maintain their current payments, but also that they can maintain a lower, modified payment. Many lenders also require that borrowers have a house payment greater than 31 percent of their gross monthly income or a credit score over 680.