Who Qualifies For A Loan Modification

There has been a lot of talk about mortgage loan modifications, particularly since the Obama Administration took office, and implemented the Making Home Affordable plan, which has been funded with $75 billion from the federal government.

A loan modification is an agreement that you negotiated with your lender that changes the terms of your current mortgage loan. The loan modification can alter some specifics of the loan, including the term, rate, balance, and penalties. It's recommended that you consult with a real estate attorney that specializes in loan modification.

So, who qualifies for a loan modification?

There is a list of basic criteria that one must adhere to in order to qualify for a loan modification. Under the Making Home Affordable plan, you must meet the following restrictions:

- The mortgage must have originated before January 1, 2009.
- The owner must occupy the home.
- The unpaid balance must be equal to or less than $729,750 for a single-family home. If your residence is a multi-unit property, you can still be eligible for a loan modification under the Obama plan as long as it is no more than a four-unit property with a value equal to or less than $1,403,400.
- The owner is having trouble keeping up with mortgage payments due to financial hardship. Maybe your mortgage payments increased due to the balloon loan you signed up for a few years earlier. Or, maybe your income shrunk or you suffered a medical hardship that increased your financial burden.
- The owner will need to show that they will soon be unable to make their payments.
- An affidavit of financial hardship will need to be submitted.
- The monthly mortgage payment must also be more than 31 percent of your gross monthly income.
- If you are in the midst of being foreclosed on, the process will stop while you’re being considered for the loan modification program or for any other alternative foreclosure prevention option.

What if you don’t qualify for the Obama Administration’s loan modification plan, are you out of luck? Don’t give up. You can go directly to your lender, as each one has different criteria for those who qualify for a loan modification. You should contact a loan modification attorney to find out if you qualify for a home loan modification.

However, there are three basic qualifications for a potential loan modification. You must prove hardship, that you lack equity in your home, and that you can afford the payment if you get a loan modification.

With regards to the hardship, you are responsible for writing a hardship letter, similar to the one under President Obama’s Making Home Affordable plan. Here, you state your case as to why you can no longer meet your mortgage payment obligations, now or if you have a balloon loan, when the minimum payment increases.

The question of equity is fairly straight forward. If you have any equity in the home, the lender will likely reject your plea for a loan modification, since they can foreclose on the house and sell it auction. If they cannot, and would end up losing money in a foreclosure, it behooves them to work a loan modification out with you.

If you meet the first two requirements, the last thing you need to do is prove that you can make the revised minimum payment under a loan modification. All of your income that can be documented is considered by the lender.

Consider your options, and you qualify any, take advantage of whichever loan modification program works best for you.