Seven Steps to a Loan Modification

The easiest way to get a loan modification is to hire a loan modification specialist who understands the ins and outs of the loan modification system – including recent changes that may affect your eligibility. Even if you do work with a specialist, it’s still highly important for you to understand the process so when a modification specialist requires documentation, you’ll understand why it is necessary. Additionally, knowing what documentation you need will help the modification process go more smoothly. If you’re already three months late on mortgage payments or more, you’re going to want the loan modification to be approved as quickly as possible.

Step One: Determine Your Financial Situation. You will have some idea about your inability to make mortgage payments based on the money you have in the bank and your current income, but you need more than a general sense to process an application. Complete a financial audit of your current situation – down to small purchases, like cups of coffee. This is similar to determining your debt to income ratio when you first applied for a mortgage.

Step Two: Write a Hardship Letter. With the resulting figures of step one, write a letter that is no longer than two pages outlining why you are unable to make payment. Some excuses for not making payment are better than others. For example, recent unemployment is more persuasive than you have sizable gambling debts. You can’t overstate your financial situation because everything needs to be documented, as in step three.

Step Three: Gather Together Documentation. Everything has to be in writing. You’ll need to provide pay stubs, a W-2 form if employed, a 1040 form if self-employed, your mortgage statement, and property tax statements. Other issues, such as necessary expenses (utilities, day care, etc.) should also be provided.

Step Four: Contact Your Lender. You can send your hardship letter directly to determine if your lender is amenable to processing a modification. Like refinancing, you may need to look for a modification through another source as well.

Step Five: Fill Out Paperwork. A lender or other loan modification company will need you to input all the information you’ve received in the above steps. Leave no financial stone unturned. The idea is not just to prove that you’re on financially shaky ground, but that you’ll be able to meet the terms of a new mortgage. So don’t only emphasize your hardship, emphasize how you will actively pay off the mortgage as well.

Step Six: Get it in Writing. You’ll hopefully receive the written agreement from the lender approving your modification – if everything goes right.

Step Seven: The Stop Gap Repayment Plan. When you accept a lender’s offer, you will need to go through a stop gap program for a maximum of 60 while the lender reviews your records. This is when the lender does the full audit of your records before the loan modification can take effect.

Do you trust yourself to be able to perform all of these steps? Do you think you can draft a professional and effective cover letter. Problems arise when people try to do a do it yourself loan modification. This can lead to a modification proposal being denied even if the homeowner qualifies. Every “i” has to be dotted and “t” crossed, so it is a good idea to hire a mediator to walk you through the process.