What is a Loan Modification? Basic Tips for the Unaware

As the most popular and available option for foreclosure avoidance for most homeowners, loan modification is constantly growing in demand. But a lot of people looking into modifications only know that it can lower their interest rates, and are left wondering what is a loan modification. There is no mystery around it: Most don't bother to ask many questions until it all comes down on the line. But a little information before foreclosure comes knocking on the door can save more than a headache.

Here are some hints and bits of information on what is a loan modification for those who are just now looking into the subject and wondering what is a loan modification:

- Loan modification is an agreement with a lender to lower and fix interest rates based on a household’s debt-to-income ratio. Some lenders also offer loan modification programs that wipe away part of the principal.

- Modification is only available to borrowers who are going through a period of financial hardship and are having difficulty making ends meet and affording their monthly mortgage payments.

- Any borrower looking into modification can only have it done once, and it must be on the piece of property they reside on.

- The maximum property value allowed for modification is usually $795,250 dollars -- some lenders require it to be less.

- Calling a lender to request their requirements is a must before applying for modification. Knowing a lender’s requirements can assist in filling out the application, writing the hardship letter, and gathering the financial documents needed to be approved.

- The hardship letter to be send in to a lender must state the circumstances around ongoing financial hardship as well as the rate the homeowner is seeking.

- All lenders require recent pay stubs (bank statements for those who are self-employed), documentation on monthly expenses, and the most recent income tax documents. Some require a written budget.

- There are FHA-appointed representatives available in each state who can give free consultations to homeowners who are not sure about their chances of getting a loan modification. These representatives can also serve as mediators between homeowners and their lenders to come to agreements on modification terms.

- It usually takes up to eight weeks for a modification application to be worked out, whether approved or not. Utilizing an FHA representative may speed up the process.

To answer the question "What is a loan modification": A loan modification is the only way most homeowners can stay in their homes if they're having financial troubles big enough to affect their ability to pay their mortgage.

For more information about loan modifications and how you can obtain one, visit the #1 loans modification resource on the net: Home Loan Modifications.