How to Begin the Loan Modification Process

by tammy on April 6, 2010

Individuals who are having difficulty paying off their mortgages or meeting payments on time may benefit from a loan modification. A loan modification is an agreement made through the lender that allows the actual terms of the original loan to be modified in some way that is beneficial to the borrower. The terms of a loan modification may vary from company to company, but terms that are frequently modified include the amount of payments, the time one has to make these payments, and how frequently these payments will occur. It is important, however, that renters take certain steps in order to successfully begin and ultimately complete the loan modification process.

The first thing borrowers should do is sit down and look through their finances carefully. In order to qualify for a loan modification, borrowers must be able to prove financial hardship and an inability to meet the terms of the original loan. A loan modification, as a rule, should be a last resort and not a first option. If borrowers find places in their budgets where they can save money and potentially pay off the loan as originally intended, they should choose this option. If, however, after a careful review of finances, the borrower is able to see and legitimately prove that he or she cannot meet the loan terms, then he or she is ready to embark on the loan modification process.

Borrowers should gather any and all income and expense documents in their possession. All information from the lender, including postmarked envelopes, should be kept and filed away. The last four pay stubs the borrower has received or any other form of income documentation should be on hand, as should W2 forms, bank statements, and tax returns. In general, borrowers should have in their possession all Internal Revenue Services documents from the previous three years. All bills, including past due bills, as well as any unemployment or reduced hour or layoff statements should also be on hand. All of this information will be necessary during the loan modification process and getting it together beforehand can save the borrower a great deal of time and money.

Once all of this information has been collected, the borrower must then call his or her lender. It is important that the borrower work through the sometimes complicated phone system to actually talk to a real, live person, rather than a machine. Sometimes, hiring a lawyer to handle this part of the process can make things go more smoothly and increase one’s chances of getting the loan modification. If the borrower or his or her lawyer is unable to work something out with the lender, then it may be time to contact an outside loan modification company. These companies know the ins and outs of getting a loan modification and can often make the difference in a “no” answer to a loan modification inquiry and a “yes” answer. It is important, however, that borrowers carefully research any loan modification companies before use, as some of them may be scams and can end up costing the borrower even more time and money. Careful planning, good research, and of course, good common sense will help make the entire loan modification process much easier to navigate and handle.

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