Mortgage Modification: What to Do If You Qualify


If higher interest rates or lower income leave you struggling to make your monthly mortgage payments, you may be able to get a mortgage modification.

Do Your Research
First, use our mortgage modification calculator to see if you qualify.

Under the federal Making Home Affordable program guidelines, to qualify for a modification, you’ll have to have an unpaid mortgage balance of $729,750 or less for one unit properties, have a loan that was originated on or before Jan. 1, 2009, and have monthly mortgage payments that amount to more than 31% of your pre-tax monthly income.

Next, find out whether your loan servicer—the financial institution that collects your monthly mortgage payments—is participating in the Making Home Affordable program by calling the number on your mortgage statement or checking online.  Keep in mind that your loan servicer may not actually be your lender. 

Gather Your Files
Know your monthly gross income and make sure you can provide recent pay stubs, records of any other earnings and your most recent tax return.  You’ll also need to provide account balances, minimum monthly payments due on all credit cards, student loans, car loans and other debts as well as information about your assets and your second mortgage, if you have one.  And of course, you’ll have to explain why your mortgage is unaffordable, whether the rate on your adjustable-rate mortgage has gone up, you’ve lost your job, your income has been reduced or your expenses are higher for some other reason.

Make the Call
If your servicer is participating in the Making Home Affordable program, call them and ask to be considered for a Home Affordable Modification.  

To go over your options based on your income and expenses, you may want to call contact a housing counselor approved by the U.S. Department of Housing and Urban Development at 888-995-HOPE (4673) for free assistance before calling your servicer.

Loan servicers aren’t required to participate in the modification program, but the government is offering incentives to these companies and their investors, so most major servicers are expected participate. If yours isn’t, ask them or a housing counselor about other options that may be available.

Work Out a Plan
The program defines "affordable" as mortgage payments equaling 31% or less of your gross monthly income. Its aim is to make mortgage payments affordable for struggling homeowners after a review of all monthly debts.

If the sum of your debts, plus modified mortgage payments, equals or exceeds 55% of your gross monthly income, you can only get the modification on the condition that you participate in housing counseling with a HUD-approved counselor.

Depending on your how much you earn, the interest you pay on your mortgage may be reduced to as little as 2% to make your mortgage payments affordable. If this isn’t enough for you to reach an affordable payment amount, your loan servicer may try to extend your payment term to as many as 40 years.  If that’s still not enough, you may be able to defer repayment on a portion of the amount you owe. Some of your debt may be also be forgiven.

Things to Remember
If you own and live in a property that has more than one unit, consult your loan servicer directly to find out whether you qualify for a mortgage modification.

Borrowers who do qualify will never be required to pay a modification fee or pay past due late fees. And if there are any costs associated with modification, including payment of back taxes, your servicer will let you decide whether to add the amount to what you owe or pay it in advance.

Beware of any agencies that charge an upfront fee for housing counseling or modification.  Advice from a HUD-approved housing counseling agency is free.



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