What a loan modification is exactly is a permanent change to a term or several terms in your home loan agreement. It allows a loan to be reinstated, resulting in a lower monthly payment you can afford. Obviously, with this basic definition, it is possible to use loan modification to save you from foreclosure in a number of different ways.
The United States government is very aware of all the financial hardships of the country (after all, it caused many of them through the use of the Federal Reserve system). For this reason, they have laid out plans for government programs to help you obtain a loan modification under certain circumstances. Seventy-five billion dollars have been set aside to allocate to subsidized lenders who are willing to work with borrowers to modify their loans.
This program was designed to give banks a financial incentive to help you stop foreclosure before the home is listed for auction. Plus, if you pay your newly modified payments in a timely manner, you will become qualified to earn up to $5000 in credit toward the loan balance.
To find out if you are eligible for a mortgage modification, the first thing your lender will consider is your ability to make a modified payment currently as well as in the future. You must have proof of income and complete financial statements with details concerning your income to expense ratio, proving your monetary incapability of making your current loan payments. A hardship letter explaining your financial hardship is also required.
This documentation proves your need for a modification and hopefully your capacity for paying the modified amount should you be granted your request. You do not have to already be delinquent on your payments to qualify, as part of the purpose of the government plans is to help borrowers before they fall behind. Previously, most lenders would not negotiate with borrowers until they had fallen behind by several months.
If, however, you have fallen behind and missed payments, you can of course also qualify. Your missed payments can be added back into your loan modification in a dispersed manner, spreading the missed payments out over the term in order to bring your loan payments current. They can also be added to the back end of the mortgage, so you pay them after the end of the loan's current term.
Getting started and working out the details concerning your possible loan modification option is not always easy, but can be done by almost any homeowner. What you need is the right important information to help you fight foreclosure, and getting over a foreclosure without losing your home is a great start to get you down the road to financial freedom.