How does modification work

After permanent modifications, lenders may want to see a record of 12 or even 24 on-time payments to determine your ability to repay a new loan. Be aware that, depending on how your loan is modified, your mortgage term could be extended, meaning it will take longer to pay off your loan and will cost you more in interest.

But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the potential credit risks and extra interest.

What is a loan modification? How does loan modification work? Who qualifies for a loan modification? Types of loan modification programs. How to get a mortgage loan modification. Know before you modify. Home Equity. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Personal Finance Loan Basics. What is Loan Modification? Key Takeaways A loan modification is typically granted to a borrower in financial crisis who can't repay the loan under its original terms.

Successful applicants typically are represented by legal or other professional counsel. Some consumers have access to government programs that help mortgage-holders. Article Sources. Investopedia requires writers to use primary sources to support their work. A "loan modification" is a written agreement that permanently changes the promissory note's original terms to make the borrower's mortgage payments more affordable. A modification typically lowers the interest rate and extends the loan's term.

In some cases, if you're behind in payments, you might be able to add the overdue amount to the balance of the loan as part of a modification. Lenders and investors usually won't, however, approve principal reductions as part of a modification, even if your home is underwater. To get a modification, you'll need to contact your loan servicer to get an application.

In the application, you'll have to supply details about your income, expenses, and situation. You'll also have to provide supporting documentation. Even though the process might seem intimidating, most people can apply for and, if you meet investor-specific guidelines, get a modification on their own without paying for assistance. To be eligible for a mortgage modification, along with meeting other investor-specific guidelines, you'll generally need to show that:. In most cases, you'll have to complete a trial period plan, often for around three months, to demonstrate you can afford the new modified amount.

Depending on your mortgage type and circumstances, you might qualify for a government modification program.

For instance, you might qualify for a Fannie Mae or Freddie Mac Flex Modification if you have one of those kinds of loans. Investors are free to offer their own in-house modification options, too, called "proprietary" modifications. To apply for a modification, contact your servicer's loss mitigation department, sometimes called a "home retention" department, and ask for a loss mitigation application. You can find contact information on your monthly mortgage statement or the servicer's webpage.

Depending on the situation, you might also have to provide additional documentation or answer questions from the servicer. While it's sometimes useful to hire an attorney to help you in the modification process, you should avoid loan modification companies in almost all circumstances.

Here's why. Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more. Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor.

A mortgage loan modification under certain government programs will not affect your credit. While there are no closing costs for a mortgage modification, your lender may charge a processing fee. Paying back a loan modification will depend on the type of modification you are given. But the amount of principal your lender deferred will be due when your loan matures or the home is sold.

Mortgage loan modification is typically reserved for homeowners who are already delinquent on their loans. Many homeowners are facing financial hardship right now, and many lenders and loan servicers are willing to help. But help is only available to those who ask for it. The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker.

The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates. What is mortgage loan modification, and is it a good idea? Erik J. Martin The Mortgage Reports Contributor. What happens when you get a loan modification? How do I get a mortgage loan modification?