6 Tips for Getting a Loan Modification

Remember the day you made settlement on your house? The excitement of walking through your front door for the first time? Hanging your beloved artwork in just the right spots, shopping for the perfect TV to fit the space, enjoying life in your new home.

If financial troubles have turned what used to be your little slice of heaven into a burden of anxiety and you’re struggling to make your mortgage payments, a loan modification may be the answer.

Through a loan modification, the lender agrees to permanently restructure one or more terms of the existing loan, resulting in a more affordable monthly payment. The goal is to prevent foreclosure, which can be devastating for the borrower and costly for the creditor.

A loan modification may involve reducing the interest rate, increasing the length of the loan, converting to a different type of loan (for example from variable to fixed-rate), or a combination of these options.

A loan modification is not a forbearance, which would allow you skip or make partial payments for a little while. It’s not refinancing, in which you’d close out the old loan and get a new one. Rather, it’s a way to adjust your current loan to provide long-term relief for your financial troubles.

Taking this step may mean that you end up paying more in interest and waiting longer until your home is fully paid off. But if you want to save your home, here are six things to consider to help you successfully navigate the loan modification process.

  1. Make Sure You’re Eligible

Not every borrower will qualify for a loan modification. Typically, you’ll need to prove that you’re in a significant state of financial crisis or hardship, perhaps caused by job loss, divorce, or a serious physical or mental health situation.

  1. Talk to Your Lender

Owning up to financial difficulties is not easy, but it’s the first step in digging out of the hole. Reach out to your loan provider right away. Check out your latest loan statement or the company’s online contact information for departments such as “loss mitigation.”

And if you’re dealing with a financial hardship and the phone starts ringing – answer it. It could be your lender proactively trying to help.

Be sure to clearly describe your situation, ask about options, and don’t be afraid to propose your own ideas – it shows you’re interested in finding a solution.

  1. Let the Paperwork Begin

If the representative agrees that you’re a candidate for a loan modification, complete the application paperwork in a timely manner.

You’ll need to accurately verify your income, expenses, loan payment history, and other financial circumstances to demonstrate your inability to meet the current loan commitment. You may need documents such as tax returns, bank statements, pay stubs or contracting checks, and/or a hardship letter detailing the reasons you are requesting new loan terms.

  1. Keep Your Records – and Keep Your Cool

Know that this can be a time-consuming process; you’ll be dealing with multiple representatives and a multitude of forms.

Remember that we’re all human – mistakes happen. Documents can get lost. People can interpret things incorrectly. Copy and date everything you submit. Put your name, contact information, and loan number on each page. Also keep records of anything your lender sends you. Whatever happens, be polite; people are more likely to want to help someone who’s being nice to them, so in this case, kindness really does matter.

  1. Look to the Long-Term

If you and the lender come to an agreement over your loan modification – congratulations! Make sure your expectations are realistic. Understand that the proposal may not be as favorable as you had hoped. Before you finalize anything, make sure it’s an arrangement that you are willing and able to keep.

Know that your credit score will be affected, making it harder for you to obtain other loans until your score goes back up.

  1. Don’t Give Up

If at first you don’t succeed, try, try again. Determine why the application was rejected and what you can do to get the resolution you want.

You may want to work with legal expert to help you understand your options to challenge the decision, make a counteroffer, or pursue a different solution entirely.

If you want to appeal, if you get stuck on the paperwork, if you believe your rights aren’t being upheld, or if you don’t even know where to begin, we can help. Contact Veitengruber Law, and we’ll be glad to work with you to tailor and pursue a comprehensive debt-relief plan to help you get your loan modification and financial situation back on track – all while you stay in the home you love.

Loan Modification vs Mortgage Refinancing: What’s the Difference?

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Contrary to popular belief, comparing loan modifications and mortgage refinancing is like comparing apples and oranges. Although they both have the potential to be very, very good for you – many of their attributes are actually quite different.

If foreclosure feels imminent, or if you are just beginning to really struggle to make your monthly mortgage payment, it’s important to know your options. Foreclosure is absolutely not your only option.

Loan Modifications

If you have sought the help of an experienced loan modification attorney – congratulations! You’ve taken the first step toward making changes to your existing mortgage so that it once again becomes manageable. Although you can apply for a loan modification on your own, it is not advisable. Your NJ loan modification attorney will negotiate with your lender on your behalf.

Along with your attorney’s help, you’ll apply for a loan modification with your current mortgage lender or bank. Your lender will then review your application, and may negotiate with your attorney about which changes to your loan would make the most sense. Some common changes often made during loan modifications include: extending the length of the loan, lowering the principal amount due, one-time forgiveness of late fees, and possibly lowering the interest rate on the loan.

If approved, your loan modification will be awarded to you on a trial basis first. The trial period typically lasts for three to six months. Making all of your modified payments on time during your trial period is crucial, and if you succeed, the modifications will become permanent changes to your home loan.

Mortgage Refinancing

In contrast to loan modifications, refinancing your mortgage will result in a completely new loan. Your old mortgage will be null and void, and a new one will be generated in its place, with the goal of giving you a new, lower interest rate so that your monthly payments are much more manageable. Qualifying for a mortgage refinance means your credit will be checked again, as will your current income. You will essentially be applying for a loan all over again. If your credit score or job status has changed (for the worse) since you first applied for your original mortgage loan, your mortgage refinance application may be denied.

It is also important to note that you will have to pay origination fees and closing costs if your refinance goes through. You will need to have a home appraisal completed, and real estate market conditions will be rechecked to determine whether you should be awarded a lower interest rate in the current market.

As you can see, both a loan modification and a mortgage refinance have the end goal of making your monthly payments achievable so that you can stay in your home. To find out more about either process, or if your lender has already started foreclosure proceedings, send us a message today. Your first consultation is always free so that you can determine if our services are what you need.

Image credit: Frankieleon