Who Can Qualify for a Mortgage Loan Modification ?

One of the greatest fears people have these days is the potential for financial difficulties that lead to the loss of their home. This is not an unfounded fear. There have been well over one million foreclosures in recent years and this has had a devastating effect on the economy. While the impact on the economy on the nation as a whole is serious, the personal impact one person may face can be enormous. That is why the ability to apply for a mortgage loan modification is so very helpful. For many, a loan modification is the only means for distressed borrowers to save their homes. This leads to the obvious questions what is a loan modification and who can qualify for one?

A modification plan simply involves the alteration of the original terms of the loan so the borrower can better pay back the loan and avoid foreclosure. The various changes made to the loan can involve offering a new, lower interest rate or lowering the monthly minimum payments on the mortgage. These alterations are subsidized by federal grants which allow the lender to make the modifications without suffering financial losses. However, this program is not designed in such a way that anyone can sign up for a modification. This is a program for distressed homeowners that meet certain qualifications. These qualifications are not extreme nor are they comprised of loopholes. They are rather straightforward and include the following:

To qualify, you must be in a financial situation that makes you unable to pay your mortgage. The key word here is “unable” and not “unwilling.” Simple inconvenience does not qualify you for this program either. There has to be a legitimate negative financial situation that impairs making timely payments. The way you prove this is through displaying your debt ratio.

What is the debt ratio? It basically is a statement of expenditures that show expense deficits are precluding the ability to pay a mortgage. In other words, you need to show that after spending your income on the essentials in life, there is very little – if anything – left over to pay your mortgage.

A definitive statement in writing that you have every intention to pay your mortgage is also required. While some may consider this trite, one needs to understand that such modification programs are, essentially, legal processes designed to amend a legally binding contract. That is why providing a statement in writing that you have every intention to pay your loan obligations is mandatory. You are, in essence, making a promissory note at the onset of the proceedings.

You will also need to present a hardship letter. This letter details the specific situation that has led to your negative financial situation. The reasons people fall into a hardship situation can vary. Often, it is due to a job loss or a reduction in income. For some, it is excess medical bills. In general, any legitimate situation that has yielded a major drop in income will qualify one for the modification option.

Probably the most important qualifier for having your mortgage modified is the ability to pay for the new mortgage payments. This means you must clearly prove on paper that you can make the new payments. If you cannot afford the new payment amounts, there is no reason to make any changes. This is because foreclosure will be inevitable in such circumstances. If you can demonstrate you ability to make the new payments, then putting forth new loan terms is beneficial to all parties involved. Remember, the lender would greatly benefit more from providing a new payment plan than it ever would by initiating foreclosure proceedings.

Again, these qualifications are not exactly excessive and anyone that is legitimately in a bad financial situation can qualify

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Miki Roth is author of this article on Mortgage Modification. Find more information about Loan Modification Help here.

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