In the most simple terms, a loan modification is a change in the terms and payment of a home loan to one that you can afford. This is NOT a refinance and no credit review is required. You do, however, have to prove that you can make the proposed payments and must demonstrate a hardship situation such as a loss of income, an increase to your mortgage payment (known as an “adjustment” to the rate), medical bills, disability or a situation that created a hardship for you.
There has been an explosion in a new “cottage industry” of so-called loan modification specialists. Do NOT use anyone who charges an up-front fee. Period. When you made your loan, did you pay your loan officer in advance? I know the answer is “No." Your loan officer works on commission is paid only when and if the loan is funded. So, why would you pay anyone an advance fee of $2,500 or more without seeing the out-come of their work?
In my work, I charge a $95 nominal fee to assess your situation to help determine if you are a likely candidate for a loan modification. There are six up-front questions:
- Do you have a genuine hardship to pay your mortgage?
- Do you have a realistic expectation of establishing new terms that are affordable to you and can find reasonable agreement with your lender?
- Do you have a genuine desire to stay in the home (long-term)?
- Are you willing to sell-off your toys (boat, rv, jet skies, etc.) and apply that money toward your mortgage as a sign of good faith with your lender that you want the house more than the toys?
- Are you willing to attend credit and mortgage counseling as a part of the negotiation and follow-through with your plan?
- Is your lender willing to negotiate the loan? (Some lenders are not doing loan modifications.)
If you can answer “yes” to each of these questions, I am willing to work with you.
If you have the time and understanding in preparing and presenting your own documents, you can possibly do you own loan modification. The time-frame may take 30 to 90 days or more to complete the loan modification, regardless of the person handling the matter.
Look for a loan modification company that is willing to do the following:
- Charges ZERO up-front fees to work the loan modification.
- Such a company may charge about $3,000 upon completion and only if your loan modification is successful AND you accept the terms.
One way to pay for the cost if you do not have the cash is to add it into your loan (this would be agreed upon by your lender at the very beginning). As an example, a reduction of your rate, say 6%, at 30 years fix would make the $3,000 payment portion $17.99 monthly over a 30 year period. Keep in mind that this payment is tucked into your overall new modified payment.
Good luck to you :)
A Loan Modification is any change in the loan terms, such as the lender offering you a lower interest rate or reamortizing the loan term (allowing you to repay the loan over a longer period of time than is currently left on your mortgage), in an effort to lower your monthly payments.
A loan modification is generally used when the borrowers’ circumstances have changed on a relatively permanent basis, and the loan modification will allow the borrowers to meet the modified obligation going forward. The lender will typically require that all fees be paid as part of the modification terms. If done correctly, it should protect the borrowers’ credit, while allowing the lender to show a performing asset on their balance sheet.
A loan modification should be a long term solution to the borrowers' financial needs, as opposed to a “forebearance”, for example, which is an agreement between the borrowers and their lender that reinstates the loan in return for a lump sum or series of payments. A forebearance is usually in effect less than a year.
To answer the second (and simpler) part of your question, a loan modification does not have any fees associated with it. You can pay a company a fee to do it for you but I would advise against this under most circumstances.
As to what a loan modification is… it’s simply the lender modifying the terms of your existing note for a short period of time (usually 3-5 years). This is only done after you have shown a hardship (which basically means that you can’t afford your current payment but you could afford a lower payment). The lender will take your financial information, the hardship letter, and other supporting documentation under consideration. It can take 30-90 days for them to make a final decision.
Once they do they will send you a proposal and it will be up to you to accept or deny the new terms.
Again it should be stressed that while you can pay companies to do the work for you, they will not being doing much that you could not VERY easily do for yourself.
Best of luck on your modification!