Home loan modification - do you qualify?

January 12, 6:14 PMSF Personal Finance ExaminerSylvia DeFrance

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Thousands of homeowners across the country have received help modifying the terms of their mortgage in order to avoid foreclosure or short sale.  Loan modification may be an option if you are unable to refinance and hold an adjustable rate mortgage, sub-prime loan or have a hardship making it impossible to meet your current mortgage payments.

So how do you know if you qualify for loan modification? 
Loan modification isn't only for those who are behind in payments but those at risk of falling behind as well.   If you anticipate issues in meeting your payments in the future due to interest rate resets or financial hardship such as an upcoming layoff, it is advisable to start the loan modification process as soon as possible. Each financial situation is different given your credit history, score, debt-to-equity ratio, income, the amount of equity (if any) in the home and the holder of your mortgage.  

There are some general guidelines in place that can help determine if you will qualify for mortgage modification but even if you are in doubt it contact your lender and ask about home loan modification.  (See our  How to request home loan modification article for more tips and advice).

• Financial hardship:  It happens!  Divorce, layoff, decreased salary/wage cuts, cut in hours for hourly workers, divorce, medical, injury, disability, military service, death - even job relocation.  Any of these factors is enough to drain your savings and ability to meet your monthly mortgage payments in the near term.  For many, the financial hardship is temporary.  In a year you could have your job and earnings back on track.  Loan modification can provide you with the ability to meet payments in the short-term while you work on improving your financials. 
• Sub-prime or adjustable rate mortgages: If you have a loan that has reset or is about to reset making the payment unaffordable, you are likely a candidate for loan modification.
• Decreased home value:   Declining home value isn't a sole reason for loan modification as home prices will fluctuate over the life of the loan.  Loan modification is based on your ability to pay.  If you cannot meet your payments and cannot sell or refinance your home, you may be a candidate for loan modification.
• Lending law violations:  In some cases the original lender of the loan may have violated state or federal lending laws.  This is a more difficult path to pursue and it is recommended that a reputable, local attorney specializing in such cases review your documents for free before determining if you are a candidate for such action.