Loan Modification Process for Beginners

Homeowners who are still making payments on their Mortgage loans may encounter some financial hardships or other problems that may stall their payments. When this happens, their lenders may go for a foreclosure sale of their houses. But with loan modification options, they will be able to keep their home and get their financial commitment towards the loan payments back on track. A loan modification process is the course of action taken by the qualified borrowers to restructure the terms of their existing mortgage loans and keep their homes safe from a foreclosure.

What is involved in the loan modification?

Restructuring of the current loan can include shared application, partial claim, principle reduction, term extension, or interest rates changes. In order to get your loan modification approved, you need to understand the entire process and plan ahead. Records are very important because you will be providing some documents to show you are eligible for loan modification. Some of the documents will act as a proof that you’ve been financially incapacitated to stay committed to your loan payments.

Steps Taken For a Successful Loan Modification

First you have to contact the loss mitigation department and find out whether you are eligible for loan modification service.

Once your eligibility has been verified, you will be required to submit some papers. The lender will provide a single point of contact, indicating the list of documents the borrower needs to submit.

After the application has been filled and submitted along with the requested documents, the underwriting for the loan modification will be done.  The underwriter will review the borrower’s current mortgage terms, their financial hardship, cash reserves, debt-to-income ratio, and mortgage-to-income ratio.  The underwriter may request for some additional information, such as letters of verification, additional pay stubs, bank statements, and letters of explanation.

After the underwriter has verified and reviewed these documents, the approval or denial of the loan modification will be issued. If the loan application is denied, the lender will state reasons for denial.

However, if accepted, the approval letter will state terms of the new loans, payment rate and other information the borrower needs to know about the new mortgage. The borrower will now have to accept or reject the new terms of the loan.