If you are facing a hard time in repaying your mortgage loan and as a result it is badly affecting your credit score, you can opt for loan modification and save your home from foreclosure.

What is loan modification?

If you cannot afford to make monthly payments toward your mortgage, you need to negotiate with your creditors to make some changes into your existing mortgage terms and conditions, by loan modification, so that you can repay the loan, according to your affordability. Your lender may lower your interest rate, decrease your outstanding loan amount, or may even waive off penalties towards late payments. You can negotiate with your creditors on your own or can take help of some third-party professionals.

What are the eligibility criteria?

To get approved for a loan modification, you need to fulfill some eligibility criteria mentioned below:

Your loan should be insured by Fannie Mae or Freddie Mac
You are not eligible to qualify for a refinance
You must be the primary resident of your house
You are in a state of being delinquent and going into foreclosure
You are self employed and passing through a hard financial phase
Your mortgage payments has exceed 31% of your gross monthly income
You have an adjustable rate mortgage on your current loan
You do not have any equity on your home

What documents are needed for loan modification?

Along with your application, you need to furnish the following documents:
Your salary stubs for last 3 months
Your current driver’s license
Tax returns of last 2 years
Property tax statement
Statement of your bank account
Mortgage payment statements
Details of payments towards other loan
Monthly payment details towards credit cards

What are the pros and cons of loan modification?

The pros of loan modification are:

It helps you to avoid short sale and foreclosure of your home
Your interest rates gets reduced by a considerable percentage
Your monthly payments will get lowered
You can get out of your current ARM and opt for a fixed rate
You will have peace of mind
No hoarding will be displayed outside your home, unlike foreclosure

The cons of loan modification are:

You need to provide proof of your financial disability to the lender
Your credit sore will be reduced

You need to keep in mind that if you opt for a modification program exceeding your affordability, it will ultimately lead to foreclosure. If you take help of a third-party professional, you also need to be aware of scam companies and choose a reliable and authentic one, which will help you to get the best deal.

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