Loan Modifications - When and How Do You Know If You Are Approved?

Loan modification and short sale have become synonymous with each other over the last couple of years. Both methods of avoiding foreclosure are, for the most part, precisely the same. A loan modification involves negotiations with the lender to change certain aspects of the original agreement, resulting in the loan being modified according to the new deal. This process can take several months, and sometimes, it can be an ongoing process.

To have your loan modification stop foreclosure, you will need to have made some kind of progress in negotiations. If negotiations are fruitless, the first thing you will notice is that your payments will increase for some time until they become more manageable. During this period, you may want to consider asking the bank for some type of reworked terms. They may agree upon several different things, such as extending the time for payments, reducing the interest rate, or even eliminating the penalties charged to you for missed payments.

One of the biggest problems with the loan modification stop foreclosure is that most people have already missed some payments. Most banks are not going to negotiate with you if you will let them know that you will be missing payments. Therefore, during this time, it may be best to find another lender to lend you money. If you own a home, the chances are that you can quickly sell it because it is now worth far more than what you owe on it. You can then pay off the outstanding debt with the proceeds from the sale.

You must understand how to tell whether you will qualify for a loan modification to stop foreclosure. Even if you are eligible, there is no guarantee that you will get the terms you desire. To determine whether you will be approved, the lender will look at several different factors, including the current financial situation, your ability to repay the new terms, and your credit history. Many things can be considered, but at the end of the day, the decision is made based on the information you and the lender have.

The first step in knowing how to qualify for a loan modification stop foreclosure is to contact your lender. If you have made all of your payments on time, the lender has a legal responsibility to provide you with these options. If you have been late on costs and the problem only continues, then your chances of being approved are slim to none.

A second way to determine whether or not a loan modification stop foreclosure is right for your financial situation is to look at the new contract’s terms that will be provided once the new agreement is approved. Most contracts will require some type of principal reduction. Although this sounds like a good thing, it can make things worse. Since the original loan was for a much larger sum than the amount being repaid, the original loan now weighs significantly more than the amount refunded. Suppose you only have enough money to repay the loan, but the interest rate on the principal reduction is very high. In that case, you could end up owing more money than the home is worth because you are paying more interest to the bank than the house is worth. Because of the financial situation that most people are in right now, any type of principal reduction could help the homeowner avoid financial hardship, making it one of the top qualifying options.

If your lender agrees that you may qualify for a loan modification, they will want to know exactly what you are doing to make your payments. For example, if you have missed numerous payments and are behind the costs, your lender may deny you because of hardship. The hardship that may be considered will depend on some factors, including how long you have been unemployed, any changes in your financial situation, and how much you make. You may need to show your lender why you are unable to keep up with your current income, or you will have to consider a period of rehabilitation.

Once you are approved for a loan modification, you may be asked to bring proof of employment or income verification to your bank. Another way to get approved is to have copies of your most recent tax statements. The idea is to demonstrate that you are trying to make your payments and are financially capable of doing so. Your lender wants to be confident that you can afford your new loan with your present circumstances. If you have experienced a decline in your income, you may still be denied a further loan modification, but it could be because your income is too low, and you are not telling them that it is.