How to Negotiate a Loan Modification

A loan modification may be the difference between losing your “Home Sweet Home” to foreclosure and remaining in your castle. The recession, unemployment and adjustments to ARM (adjustable rate mortgages) have conspired to push a mortgage payment outside the affordability of the homeowner. If you do not want your house to be foreclosed on, the only solution to this problem is to negotiate with your mortgage lender to implement a loan modification. Follow these six simple steps to save your home.

Step 1: Examine your finances

Banks are willing to work with lenders if they think there is a chance they can continue to keep their mortgage payments current if adjustments are made to the interest rate and or term. Homeowners need to gather information of all their outstanding debts including credit card bills, car loans and their mortgage. This will show the debt to income to ratio of the homeowners and will detail whether or not a loan modification is feasible.

Step 2: Contact your lender

With your finances in hand contact your lender. Explain to them the financial difficulties that you are experiencing and set the expectations of what you can afford to pay if offered a loan modification. If your financial difficulties are short term, lenders may be willing to offer your forbearance or postponement of payments. The lender may require you to complete additional documents.

Step 3: Negotiate the best deal

Lenders may require you to make three to six months of payments at a reduced interest rate to show that you are able to handle a loan modification. Stay in constant contact with your lender during this process because it is not unusual for lenders to take six months to a year to consider a loan modification. Lenders may be willing to extend the term of your loan or lower the interest rate for set period and then have it increase after that period ends. Homeowners can suggest terms that they prefer instead of being tied to the offer from the lender.

Step 4: Sign loan modification documents

Once the homeowner and lender have agreed to the terms of the loan modification, the lender will draw up new documents to reflect these terms. The lender will send these documents to the homeowner to sign and return. These new documents will be recorded and the homeowner will start making payments based on these new terms.

If you are facing financial difficulties and are unable to stay current on your loan payments, contact your lender to negotiate a loan modification. The loan modification may make the difference between losing your house to foreclosure and staying in your home.