Loan Modifications — How to Afford Your Monthly Payment

Many lenders will work with homeowners who are unable to pay their monthly mortgage. If you are having difficulty making your mortgage payment, you might want to consider trying to get a loan modification. Modifications come in many forms — you might get a temporary or permanent payment reduction, an interest rate reduction, temporary abatement, extension of the payment period, or some sort of mixture of these options. However, the bottom line is that help may be available to you; most importantly, you may be able to keep your home.

Of course, getting your lender to negotiate their loan with you is not easy. Many lenders won’t discuss the matter with you until you’ve missed a number of monthly payments. You may not want to get yourself in that situation for any number of reasons — it will affect your credit, you feel it will tarnish your name, you are not comfortable intentionally defaulting, etc. Whatever your reason may be, some lenders have taken a hard-line stance on loan modifications, and they will not consider a loan modification unless you have already defaulted.

However, the good news is that more and more lenders are now trying to be proactive in helping homeowners before they default. For example, last month Fannie Mae announced that its loan servicers must allow “early workout” loan modifications for homeowners, even if those homeowners have never missed or been late on a mortgage payment. If your loan is owned by Fannie Mae and you are reasonably sure that imminent changes in your financial situation or income will case you to miss mortgage payments, you may qualify for a loan modification without having defaulted on your loan.

In order to take advantage of this, you need to find out if your loan is owned by Fannie Mae; Fannie Mae currently owns over 18 million loans nationwide. If it is, you should contact your loan servicer to get the ball rolling. Keep in mind that you will be required to provide a great deal of personal financial information. If your loan modification is approved, you will be placed on a four-month trial period. If you make your payments on time during those four months, your modified loan could become your permanent loan.

Other lenders are also demonstrating increased flexibility with respect to loan modifications. However, each lender is different and has its own set of rules. Before you default or can no longer afford to pay your loan, it is a good idea to contact your lender and proactively work to come up with affordable payment terms so that you can keep your home.