Loan modification agreements come in different forms, but quite frequently they involve the reduction of mortgage's interest rate (down to as low as 2%) for a specified period of time (typically 5 years) so the homeowner can continue to make payments and stay in the home. Loans can also be modified so they have a longer amortization term (e.g. 40 year instead of 30 year) which will cause the payments to decrease. Principal reductions are rare, but there are times when the lender actually forgives some of the principal amount.

In most cases, if you are currently behind with your payments, your loan modification can include a forbearance of those delinquent payments giving you a fresh start. However, it is not necessary to be past due on your payments in order to qualify for a modification - this is one of the biggest myths currently circulating.

A loan modification is a re-write of your existing mortgage repayments terms. The new terms are specific and agreed to in writing. It is imperative that you make your newly modified mortgage payments on time. You will probably not be given another opportunity to re-write your terms again. When you succeed making your payments on time you may be financially rewarded for your timely payments. Some loan modifications include a $1000 annual reward for perfect payment records in the preceding year.

The most common type of loan modification program is the government backed Home Affordable Modification Program (HAMP). The eligibility criteria for the HAMP are:

• Be an owner-occupant in a one to four unit property
• Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties)
• Have a loan that was originated on or before January 1, 2009
• Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
• Have a mortgage payment that is not affordable, perhaps because of a financial hardship (this is a key requirement for HAMP)

HAMP is focused on getting as many families as possible who are struggling with their mortgages into a mortgage that they can afford over the long-term. HAMP lenders have the ability to exercise one or all of the methods listed above to get your mortgage payment down to an affordable amount. Click below to start your Loan Mod application now!

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