How to Prepare for a Successful Loan Modification

Lenders are still reeling from the huge numbers of homeowners requesting loan modifications…so the more preparation you do, and the more you know what to expect, the faster your modification will get done.

The First Step: Do I Qualify for a Loan Modification

Would you invest dozens of hours of your time and thousands of dollars in a project you knew was going to fail?  Probably not.

Federal guidelines for loan modifications target a monthly housing payment of 31% of an applicant’s monthly gross income…so…knowing this target number is the first step in deciding if a loan modification is possible for you. 

Take a careful look at your monthly budget…consider ALL expenses…and determine what 31% of your gross income means.  Many borrowers have experienced large decreases in their incomes.  What was possible when you bought your home may be impossible now.  With 31% of your gross to put toward the loan payment, property tax, and homeowners insurance what monthly payment can you afford?

Use your target payment to work backward to a loan balance and interest rate…then consider how much of a loss you are asking the lender to accommodate.  Reducing your interest rate temporarily and adding missed payments onto the end of a loan are relativley common…50% reductions in principal owed are pretty rare.

The Second Step: How do I Start the Loan Modification Process?

Too many times I hear from homeowners that have worked for months on a loan mod…only to hear that the bank said no.  Here’s how to avoid disappointment in five quick steps:

1. Get started early…before you miss any payments…once you start missing payments thigs get LOTS more complicated
2. Gather ALL your financial and tax information for the past two years…evaluate where you are…what you can afford to pay…and go to a CPA…your lender is going to go over your books…you need to have expert tax an accounting advice BEFORE you start the loan mod process.
3. Consider hiring someone that specializes in securing loan modifications for clients…the banks use expert negotiators…because the process takes so much time and effort…I only know of one firm that guarantees you get every penny of your money back unless YOU approve the mod…that is a good guarnatee…ask me for contact info
4. If you go it alone buy a folder and document every call, email, contact with the lender…and track every document you send to them.
5. If you suspect that the original loan was made under “questionable” circumstances contact a lawyer that specializes in home loan law.  There are very few cases where the lenders made legal mistakes…but don’t overlook this potentially critical aspect of the process.

The Third Step: How do I Know the Loan Modification they are Offering is the Best I can Get?

This is by far the hardest question I get from clients…and if you are doing this on your own you will probably never know for sure…if you hire a negotiator they should be able to give you examples of recent mods from the same lender…but there are still lots of resources available…with the internet as the best tool for finding the answers.

It all comes down to how the proposed changes work for you…will they enable you to stay in the home permanently…or are they a temporary fix?  Will your principal be reduced, or will the length of the loan be increased?  Consider all the positives and negatives, and please don’t hesitate to ask if you have any questions!