Simple Loan Modification Guide for Homeowners

So you are suddenly having trouble making your mortgage payments—you might feel alone, but don’t. The poor economy is wreaking havoc on the lives of American homeowners, and there are record foreclosures all across the country. If you can’t pay for your home anymore, then this simple loan modification guide is for you.

The first thing to do is locate a professional financial counselor. Financial counselors can be found in online directories or in the yellow pages. Another way to find a financial counselor near you is to contact a HUD (Housing and Urban Development) office. They can refer a free, HUD-approved counselor at a non-profit organization. Financial counselors help you determine whether loan modification is right for you.

The next step is to compose your hardship letter. Lenders use this letter to understand why you are requesting modification and your reasons for defaulting on the loan. You can use online templates or the help of your counselor to write a good, professional, effective letter. The most important thing a hardship letter should do is communicate that you are a responsible, hardworking homeowner who needs and deserves a second chance.

The third step is to provide financial documentation. Depending on your situation, you may use tax returns, pay stubs, letters from employers, or other pertinent documents like divorce papers or excessive medical bills that caused you to become delinquent on your mortgage payments. You’ll also need to verify your gross monthly income if you plan to use the President’s new Making Home Affordable plan.

Not all loan modifications are obtained through the Making Home Affordable plan, but many are. The Making Home Affordable plan runs from March 4, 2009 to December 31, 2012 and allows millions of eligible homeowners obtain loan modifications that decrease their monthly payments to 31% of their gross monthly income. So this plan will be of great interest to you if you have experienced a sudden pay cut or been laid off from work.

The Making Home Affordable plan is financed by the Homeowner Stability Initiative, a $75 billion initiative to assist homeowners in preventing foreclosure by paying out incentive payments to both lenders and borrowers that use the loan modification programs outlined in Making Home Affordable. Currently, only loans insured by Freddie Mac and Fannie Mae can use the Making Home Affordable modification process. If your loan isn’t a Freddie or Fannie loan, then you may still be eligible to refinance or modify your loan through other initiatives and programs.

For additional information about home loan modifications.