In order to avoid foreclosure, your lender may agree to modify some or all of the terms of your loan. A loan modification is a negotiation between you and your lender. It begins by contacting your mortgage company, discussing your problem, and proposing a solution that involves modifying the loan.

The purpose of a mortgage modification is to get your monthly payment to a more affordable level. An “affordable” mortgage payment is typically defined as 31% of the borrower’s monthly gross income. So for example, if you earn $4,200 a month, then your loan will be modified to be 31% of your income or $1,302 per month in this case.

The federal government and the Department of Housing and Urban Development (HUD) have created and recently updated several loan modification programs for a person’s primary residence.

Personal qualifications

As long as you can verify a legitimate financial hardship that impacts your ability to make your loan payments, you may qualify. Contrary to popular belief, you do not need to be behind on your payments before a lender will consider doing a loan modification with you. If you are behind on your payment or facing foreclosure, applying for a loan modification places a temporary halt on the foreclosure process.

Mortgage qualifications

In order for your loan to qualify for modification, the following conditions must apply:

• You obtained your mortgage on or before January 1, 2009.
• You owe up to $729,750 on your primary residence or single unit rental property.
• You owe up to $934,200 on a 2-unit rental property; $1,129,250 on a 3-unit rental property; or $1,403,400 on a 4-unit rental property.
• The property has not been condemned.
• You have a financial hardship and are either delinquent or in danger of falling behind on your mortgage payments (non-owner occupants must be delinquent in order to qualify).
• You have sufficient, documented income to support a modified payment.
• You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering, or tax evasion, in connection with a mortgage or real estate transaction.

What if I don’t qualify or have been denied?

Unfortunately, not all struggling homeowners qualify for the government modification program. Credit.org, a HUD-approved housing counseling agency, has developed three programs to help homeowners who have been denied or do not qualify for this federal program:

• The Home Affordable Foreclosure Alternatives (HAFA) Program – Government assistance for a short sale or deed-in-lieu of foreclosure

Other Loan Mod Programs

• VA Loan – If your home mortgage is a Veterans Administration (VA) loan, then there is a specific government program called the Cal Vet Modification.
• FHA Loan – There is a loan modification program specifically for Federal Housing Administration (FHA) loans
• None of the Above – Banks who do not participate in the government programs may have their own unpublished loan modification programs with a different set of qualifications.

If you are currently facing financial hardship and want a loan modification, then know that time is of the essence. You have a greater ability to negotiate with your lender earlier on in the foreclosure process than later. Get started today:

1. Collect Your Financial Information
   You’ll need to provide your current income and expenses.
2. Collect Your Mortgage Information
   Get a copy of your mortgage statement that has your loan number on it.
3. CALL
   If you’re ready to begin negotiating for a loan modification, get some free advice before contacting your lender. Talk to a nonprofit housing consultant from a HUD-approved agency and find out how likely you are to qualify for a loan modification based on your individual mortgage and financial situation.

Nonprofit housing consultants from a HUD-approved agency can provide you with:

• All available loan modification options
• A customized action plan
• Budget suggestions
• Help in negotiating with your lender