If you're looking into loan modification, you're either curious about what exactly loan modification is or you want to find out what lenders are paying attention to on loan modification applications. Not to worry: Half of the homeowners in the country are looking for that exact same information.
The long and the short of it is: loan modification is a lowering of your monthly mortgage payments. Your lender does this through reducing and locking your interest rate while deferring a portion of the principal. All in all, it is extremely beneficial for any homeowner going through financial hardship.
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Knowing what it is is only a fraction of the battle. Lenders are tough on reviewing your application for loan modification.
The simple answer to what lenders are looking for in loan modification applications is: financial security. Your lender needs to be sure you can make your new lower payments each month. Loan modifications are huge gambles for lenders because they essentially lose money right at the start. Your lender needs to feel secure in their agreement with you.
If you have a blotchy work history, have only been with your current employer for a shirt time, or are unemployed your lender is much less likely to approve your loan modification application. However, if you have a soon-coming prospective increase in your income (such as a raise or promotion for those who are employed, or a job interview you are confident about for those who are unemployed) your lender will most likely give your application a more serious look-over.
You can state possible future financial opportunities in your hardship letter, which you should send in along with your application. Besides the topics mentioned above, the hardship letter can be your platform to state any of your special circumstances of your financial hardship and possibly turn the tide of negotiations in your favor.
Your lender will also be looking for clear information pertaining to your income to debt ratio in your loan modification application. The higher the debt ratio, the more likely you will qualify, but if your income is too low you could become disqualified. The lenders are looking for a sign that you can afford even the lowest rate they can give you. But if your income to debt ratio is not too bad and they still reject you, inquire with them about why they did not approve your application. In many cases, a simple consultation with a state approved loan modification specialist (free under the Home Affordable Program) can not only pinpoint the problem, but also help you in negotiations with your lender over acceptable modification terms.
But keep this one thing in mind: No matter how much you need the assistance, absolutely do not lie on your loan modification applications. Your lender will find out, and you may be out of a home.
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