Loan Modification Fact and Fiction – Who Qualifies and What Can Be Modified?

chkcgkMany people often ask how they can qualify for loan modification and afterwards they want to know what can be modified after they are qualified. These are in fact 2 separate questions and these would be answered separately as well although they are joined in a certain way.

Qualifying for Loan Modification:

Firstly, for you to qualify for a loan modification, you have to fulfil the following requirements:

  1. You want to save and keep your home
  2. You got the mortgage before or on the 1st of January 2009
  3. The house you want to keep is the house you use as your primary and main residence
  4. You are delinquent, experiencing hardship and you are at risk of falling behind
  5. The payment for your mortgage is above 31 percent of your monthly gross income
  6. You have never been convicted for a severe crime that relates real estate or mortgage theft or fraud
  7. You possess abundant and documented income to back up the modified payments

These requirements make you a good candidate for loan modification. But fulfilling these requirements does not make you automatically qualified for loan modification. Lenders have their own requirements which could actually vary from one lender to another. There is a program sponsored by the government known as HAMP program offered to the borrowers to help them in times of hardship.

How to modify loan?

When you are eligible for loan modification, your lender would modify your loan via:

  1. Lowering your rate of interest
  2. Making an extension on the length of the loan, close to 40 years
  3. Defering a part of the principal amount to a balloon payment with minimal or zero interest.

Your lender could make use of just one or all the three tools to modify your loan. While he is doing this, he would search for a situation that would place you in the 31 percent ratio.