If you're struggling to make your mortgage payments each month, you can find relief by convincing your lender to reduce the principal balance on your loan, something that would leave you with a lower payment. But doing this is no easy task. You must first prove that you are suffering a financial hardship that makes paying your mortgage each month impossible. You'll also have to hope that your lender views lowering your balance as a more economical move than foreclosing on your home if you can no longer make your payments.
Call your mortgage lender and explain that you are struggling with a financial challenge that has made it impossible for you to afford your mortgage payment. Your lender might participate in the federal government's Home Affordable Modification Program, a program that provides financial incentives to lenders that reduce the monthly mortgage payments of struggling homeowners. Even if your lender doesn't participate in this program, it might still opt to reduce your mortgage balance as a way to hep you avoid foreclosure. Foreclosure is a costly and time-consuming process for lenders, and many will take steps to avoid it.
Determine if you are eligible for the Home Affordable Modification Program if you lender is participating. To take part in this program, you must owe no more than $729,750 on a primary residence or single-unit rental property, and you must have taken out your loan on or before Jan. 1, 2009. You must be able to prove that you have enough income to make your new mortgage payment after a principal reduction. And you must be suffering a financial hardship and are either already behind on your mortgage payments or in danger of falling behind.
Write a financial hardship letter that explains why you can no longer afford your monthly mortgage payments. This letter should list your hardship -- maybe a spouse lost a job, you sustained a serious injury that has kept you from working or your employer has reduced your hours -- and include an estimate of how much of a payment you think you can afford. You'll have to provide this letter whether you are working with your lender privately or through the Home Affordable Modification Program.
Copy the financial papers that demonstrate your financial hardship and your current gross monthly income. This can include your most recent work paycheck stubs, bank account statements, credit-card bills, hospital or doctor bills and income-tax return statements. Your lender will study these to determine whether you truly can't afford your current payments and, if your lender agrees to reduce your principal balance, how much of a payment you can afford.
Study your lender's offer if it agrees to reduce your principal balance. Only accept the offer if you are sure you can afford your new payment. Your lender might also offer to reduce your payment in ways other than lowering your mortgage's balance. Your lender might offer to lower your interest rate or rework the length of your loan. Consider such options, too, if they will leave you with a mortgage payment that you can afford.
Find out from your lender whether you are subject to home resell restrictions after your loan modifcation.
- Find out from your lender whether you are subject to home resell restrictions after your loan modifcation.
Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.