Many homeowners are considering a modification of their existing mortgage to obtain a more affordable monthly payment. The loan modification process is often confusing and frustrating for a distressed homeowner. A mortgage modification typically changes the existing mortgage loan to include a lower interest rate, longer repayment term or a reduction in fees. This change is intended to make the loan more affordable to the borrower and avoid foreclosure. The actual process of modifying a loan varies from one lender to another, but the following information generally applies to most lenders.
1. Education - The mortgage company has employees that deal with loan modifications every day. Before contacting your lender, you must understand the modification process yourself or work with a service company (or attorney) that will represent your interests. The lender's employees are looking out for the best interests of the lender, which may not be your best interests.
2. Lender Contact - The loan modification process is typically started by contacting the lender responsible for the loan. This contact may be initiated by the homeowner or by a service company acting on behalf of the borrower. You may be transferred to several different people before finding the correct person or department to handle your request - be patient and persistent.
3. Documentation - Lenders will require certain documents to start the procedure. The required documents vary from one lender to another, but in general include a hardship letter describing your situation, current income (to show that you can make the new loan payment), and a monthly budget showing your regular expenses. Lenders may also require completion of an application form to submit with your documentation package.
4. Negotiate - Each borrower's situation is different and each lender has different guidelines for their loan modification process. Since each situation is different, it is important to negotiate a new terms that are acceptable to both the homeowner and the mortgage company. Also, the homeowner must understand the terms of the modified loan agreement and the financial impact of those terms.
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