How to Qualify for a Loan Modification

Because a loan modification is offered to those homeowners who can’t afford their current mortgage, there may be the misconception that all homeowners are eligible for a loan modification – not in terms of homeowners who don’t qualify because they can afford their mortgage without restructuring, but those homeowners who are a financial liability. Even though loan modifications are aimed at helping homeowners who are financially struggling, this does not mean that all struggling homeowners are eligible.

One of the arguments against the federal loan modification program is that it could inspire a lack of responsibility on the part of homeowners. Here’s how it would work: a homeowner would not qualify for a modification unless he was late on payments. Wouldn’t it stand to reason, then, that if the homeowner did intentionally default that he or she would then be eligible? Well, it’s not quite as simple as that, and just because people may look to abuse the system does not mean that the system is flawed.

On the flip side, what about those homeowners who are struggling to an extreme degree? Though people can qualify for loan modification even if their in the middle of bankruptcy, generally it is in a homeowner’s best interest to be as financially stable as possible. Don’t work by the misconception that you can be irresponsible and still qualify. You should be approaching a loan modification with the same seriousness as approaching a traditional mortgage.

Getting Prepared for a Loan Modification

To make your case to a bank or other loan modification firm you need to make clear of two things: both the financial necessity of a loan modification and assurance that you’ll be able to meet the terms of a restructured loan. It’s important that you:

• Have a good credit history
• Have been in the same residence for an extended period of time
• Have suffered recent – not prolonged – financial turmoil, such as recent unemployment
• Have the potential to pay off a loan for an extended period via reliable income

Likewise, these homeowners are less likely to qualify for a loan modification:

• Have no financial backup, such as part-time employment or savings
• Have been in a home under a year
• Have very bad credit
• Have defaulted extensively

When homeowners first shop for a home and look to apply for a mortgage, they get their financial house in order: save up for a down payment and try to improve their credit history to secure a mortgage with good interest rates. A loan modification is no different. Obviously, it’s much more difficult, because if you could simply get your financial house in order then you wouldn’t need to apply for the modification. But don’t think that you can be financially destitute and still apply. Try to improve your credit and financial situation in some way before applying and you will be more likely to be approved for a loan modification with more attractive terms. Working with a loan modification company can help you get all of the information you need together in order to make the best case possible to lenders.