What is the Definition and Process of a Loan Modification? A possible alternative to a short sale, deed in lieu of foreclosure, pre-foreclosure or foreclosure for a homeowner is a Loan Modification from the Lender or Mortgage Company. First and foremost, in order to request a loan modification the homeowner must be experiencing or has experienced a "hardship". It can be at the sole discretion of the Lender to approve or disapprove this request. If approved, the new terms of the loan modification could lower your interest rate on the loan or extend the length of the loan.
Under President Obama's "Making Home Affordable Plan" there are some general guidelines that may or may not be specific requirements by the lender. Some of these general guidelines include; currently residing in the home, the mortgage balance must be less than $729,750.00, the loan must have originated prior to January 1, 2009 and your house payment which includes principal, interest, taxes, insurance and Homeowners Association fees must be greater than 31% of your gross monthly income.
When applying for a loan modification be prepared to provide several financial statements to the lender. During the initial process if the lender determines a loan modification might be considered and approved the lender could offer the homeowner a "trial" period of reduced monthly mortgage payments. This trial period will only last for a period of 3 to 9 months depending on the financial institution, before a final determination is made. The lender will continue to ask for supporting financial documentation throughout the trial period.
These additional documentation requests from the lender might include pay stubs, tax returns from previous years, bank statements including checking and savings accounts, visit web garden furniture (www.awardinternetmarketing.com) stocks, bonds, 401K accounts and other types of investments. If the homeowner receives final approval, a permanent modification package is executed with the new terms of the loan. As mentioned earlier, most lenders will either reduce the interest rate on the note or extend the length of the loan but in most cases, the lender will NOT reduce the Principal balance on the note.
Prior to requesting a loan modification be sure to consult an attorney or tax consultant as there can be important legal ramifications and tax consequences. This process is probably the most advantageous to the homeowner if a hardship is encountered.