Lawyer Referral Service

LRS Blog


Posted by: Maricopa Lawyers on Jan 1, 2016

For several years now, everyone has heard about the mortgage loan crisis and many of us have been directly affected by it. In the past few years, millions of borrowers have defaulted or fallen behind on their monthly mortgage payments. If you’re behind on your mortgage payments, you may be considering a house loan modification, or maybe just curious about what it is. Here’s some more information on how you can save your home.

The Basics of a Loan Modification 

A loan modification is a permanent change in the terms of your loan. This typically means that the loan can be reinstated and that payments can be lowered so that you can afford them. A loan modification is a written agreement between the borrower and the lender that permanently changes the original terms of the promissory note to make the mortgage payments more affordable.


The lender makes the payments more affordable by:

  • lowering the interest rate
  • lengthening the repayment term
  • reducing the principal balance of the loan
  •  

 

Eligibility for a Loan Modification

While it can seem a bit mysterious, there are some general requirements for loan modification eligibility, including:
Financial Need. You need to be able to show an unavoidable financial need in order to qualify for a loan modification, such as a loss of a job, a death of a spouse/child, or an illness or disability. The key here is that the change in your financial picture that caused you to no longer be able to afford your original loan payment must have been unforeseen or unavoidable. If you went into debt for a new car or racked up credit card balances, the lender will not consider that unavoidable.

Ability to Make the New Payment. While you are demonstrating a financial need to have your payment lowered, you must also show an ability to pay the lowered payment. Lenders are trying to avoid foreclosures, so they can temporarily lower payments or permanently lower interest rates, but they must be sure that you can afford the adjusted payments.

The biggest key in saving your home is communication. While many people tend to avoid their lenders, speaking to them honestly about your situation allows them to help you better. In some cases, professional expertise is also a good idea, and can save you money in the long run.