What Are the Guidelines for Mortgage Loan Modifications?

by Lanae Carr ; Updated July 27, 2017

Foreclosure alternatives are plentiful, but each mortgage assistance program comes with a specific set of stipulations. Loan modification helps homeowners afford the cost of their mortgage payments by permanently restructuring the loan. If you want to pursue a mortgage loan modification, research your options before applying for help. Failure to meet the terms of the modification program can result in foreclosure.

Loan Modification

Loan modification is a viable option for homeowners with predatory mortgage loans and those experiencing significant financial hardship. Loan modification is a procedure for changing the terms of your mortgage loan so that it creates affordable payments. For example, your lender might agree to extend the life of your mortgage loan or add your past due amount onto your principal to bring your mortgage current. Actions taken by the lender vary based on your situation. However, there are minimum requirements you must meet before submitting a modification proposal.

Income

To qualify for a loan modification, you must have a source of income. Lack of income means you are unable to meet the new terms of your mortgage loan. Changes to your loan do not become permanent until you undergo a trial period. During this trial period, lenders assess your ability to make timely payments. Lenders request documentation of your income in the form of pay stubs unless you are self-employed. If you are self-employed, copies of your recent tax returns and bank statements may be required instead.

Financial Need

Loan modification is not a luxury. You must have documented financial need to qualify for the program. Whether you are already behind on your mortgage payments or in danger of falling behind, lenders use your household budget information to make a determination of your level of need. The goal of your budget is to illustrate how lower payments will help you regain financial stability. If your budget indicates you are unable to make the new payments as a result of overspending or too much debt, you may be denied a loan modification.

Primary Residence

If your property is a second residence or investment property, it is not eligible for a loan modification. Loan modifications are reserved for homeowners attempting to save their primary residence from foreclosure. Pursue alternative mortgage assistance options for help with second residences. Fewer resources are available for homes that are not your primary residence, but some options exist. For example, you may qualify for forbearance on your mortgage loan if your financial hardship is temporary. Forbearance occurs when your mortgage payments are temporarily suspended or reduced.

About the Author

Lanae Carr has been an entertainment and lifestyle writer since 2002. She began as a staff writer for the entertainment section of the "Emory Wheel" and she writes for various magazines and e-newsletters related to marketing and entertainment. Carr graduated from Emory University with a bachelor's degree in film studies and English.