Loan Modification Programs: How to Qualify and Apply
Understanding the qualifications and how to get started
In order to avoid foreclosure, your lender may agree to modify some or all of the terms of the loan. A loan modification is a negotiation between you and your lender. It begins by contacting your mortgage company, discussing your problem, and proposing a solution that involves modifying the loan.
How the Government Loan Modification Programs Work
The purpose of a mortgage modification is to get your monthly payment to a more affordable level. An "affordable" mortgage payment is typically defined as 31% of the borrower's monthly gross income. So for example, if you earn $4,200 a month, then your loan will be modified to be 31% of your income, or $1,302 per month in this case.
The federal government and HUD have created and recently updated several loan mod programs for a person's primary residence.
Home Affordable Modification Plan (HAMP)
The Obama Administration introduced HAMP as part of the Making Home Affordable plan to stabilize the housing market. Under the federal loan modification plan, your monthly loan payments are reduced by modifying one or more components of your mortgage:
- Lower the interest rate
- Extended the life of the loan
- Lower the loan principle
How to Qualify
Loan Modification Evaluator
Interactive tool determines how likely you are to qualify for a loan modification and evaluates your mortgage options.
Start the Modification Evaluator »Personal qualifications
As long as you can verify a legitimate financial hardship that impacts your ability to make your loan payments you may qualify. Contrary to popular belief, you do not need to be behind on your payments before a lender will consider doing a loan mod with you. If you are behind on your payment or facing foreclosure, applying for a loan modification places a temporary halt to the foreclosure process.
Mortgage qualifications
In order for your loan to qualify for modification under HAMP, the following conditions must apply:
- The property is the borrower’s principal residence.
- The first mortgage originated before January 1, 2009.
- The mortgage is delinquent or default is reasonably foreseeable.
- The mortgage’s unpaid principal balance is no more than $729,750 (higher limits for 2 to 4 unit dwellings).
- The borrower’s total monthly mortgage payment exceeds 31% of their gross income.
- The mortgage also needs to be serviced by a lender who is participating in the HAMP program (the majority of lenders are).
What if I don't qualify or have been denied?
Unfortunately not all struggling homeowners qualify for the government modification program. Springboard, a HUD-approved housing counseling agency, has developed three programs to help homeowners who have been denied or do not qualify for this federal program:
- The HAFA Program - Government assistance for a short sale or deed-in-lieu of foreclosure
- Safe Haven Program - For people with too much debt and monthly expenses
- Soft Landing Program - Guidance for a smooth transition out of the home
Other Loan Mod Programs
- VA Loan - If your home mortgage is a VA loan, then there is a specific government program called the Cal Vet Modification.
- FHA Loan - There is a loan modification program specifically for FHA loans
- None of the Above - Banks who do not participate in the government programs may have their own unpublished loan mod programs with a different set of qualifications.
How to Apply for a Loan Modification - 3 Simple Steps
If you are currently facing a financial hardship and want a loan modification then know that time is of the essence. You have a greater ability to negotiate with a lender earlier on in the foreclosure process than later. Get started today:
- Collect Your Financial Info
You'll need to provide your current income and expenses - Collect Your Mortgage Info
Get a copy of your mortgage statement that has your Loan Number on it - CALL
If youre ready to begin negotiating for a loan modification, get some free advice before contacting your lender. Talk to a HUD-approved, nonprofit housing consultant and find out how likely you are to qualify for a loan modification based on your individual mortgage and financial situation.
HUD-approved housing consultants can provide you with:
- All available loan modification options
- A customized action plan
- Budget suggestions
- Help in negotiating with your lender
