Although a loan modification can be a great way to get out of mortgage debt and avoid a foreclosure, they aren’t always the easiest to obtain. Many homeowners have tried applying for a loan modification only to be turned away by their lender. Although some of these rejections were due to unreasonable and stubborn lending practices, some can be attributed to the fact that not every homeowner experiencing financial trouble will qualify.
Every lender is different and securing a loan modification is purely in their hands. However, there are a few general guidelines to review to determine if you may qualify for a modification.
1. Financial details— your lender will want to review the details of your income, the home’s value and the amount of equity in the home. Most lenders won’t approve modifications if your mortgage payment is less than 30% of their total monthly income. You may also be denied a modification if your home’s value is worth considerably less than it was a few years ago, or you have little to no equity in the home.
2. Financial Hardship–your lender will need proof of your financial hardship before they will consider your modification. Sudden job loss, loss of spouse or income provider, medical bills or medical illness are some examples of a financial hardship. If you cannot demonstrate your financial need, you may not be eligible for a loan modification.
3. Residence Type— you will need to demonstrate that the residence is your primary residence. Most lenders won’t approve loan modifications for rental or investment properties. Similarly, if you secure a loan modification and then move out to rent the property, your modification agreement may be terminated.