Mortgage Loan Modification: How to Start the Process
If you are concerned about your mortgage and are thinking of asking for a loan modification, it’s important to begin preparing right away. Starting the process early will make you more likely to succeed.
- First, get organized. Gather all of your paperwork pertaining to your home loan, your income, and your monthly financial obligations. You’ll need to demonstrate that you can afford to make your new mortgage payment after the modification, and be able to back that up with paperwork.
- Your monthly mortgage statement is the first, most important document to have on hand. If you live under an HOA or other similar arrangement, have documentation about your dues or fees.
- Next, get any paperwork that documents any second mortgages or home equity lines of credit.
- Don’t forget your homeowner’s insurance and property taxes. All of this data gathered together will be crucial to your loan modification application.
- Get your most recent tax return, payroll stubs and other proof of income. On the one hand, you need to demonstrate that you need some help to make your mortgage payment, but you also need to show that you can make regular monthly payments if you get a modification.
- Also pull together statements and documents for all of your non-housing related debts. Include auto loans, student loans, credit cards, etc. You and your lender need all of this information to create a budget so you can figure out what you can afford in a new mortgage payment.
Once you’ve gathered all of this information, take some time to draft a narrative outlining your situation. Come up with a succinct document that discusses your financial situation, how you got into trouble, and how you see your future after a loan modification. Do you expect your financial situation to stabilize? Are you confident that you can make your future mortgage payments? Having a narrative prepared will help you and your housing counselor when it’s time to negotiate with your lender.
This narrative should be honest and complete, and any communication you have going forward should be consistent with this narrative. Think of this as a way to “get your story straight” so you don’t have any confusion or inconsistencies when communicating with your lender. Remember that this narrative should be an honest account-you’re not trying to trick anyone or game the system, just get your thoughts in order and communicate your situation clearly.
Now, with your paperwork and your narrative in hand, you can reach out to your lender’s loss mitigation department and talk about the loan modification process. Be sure to take thorough notes of every conversation you have with your lender, and get the name and title of everyone you talk to.
You can always reach out to a HUD-Approved housing counselor to help you with the process. Make sure they are truly approved by HUD, they don’t charge any up-front fees, and beware of aggressive marketing tactics and the like. Check out any agency you work with on the HUD.gov website before entering into any negotiation.