Do Home Loan Modifications Work?

Many people today are dealing with stresses, especially real estate. For homeowners struggling, lenders have a number of options, one being the home loan modification. Obviously, if a home goes into foreclosure, the owner is not the only one that loses - the bank also loses a significant amount of money. Therefore, it is in the lender's best interest to find viable solutions to help homeowners keep the home and avoid the property going into foreclosure.

While processing of a home loan modification is somewhat lengthy, for many people, it is worth going through. The type of paperwork the homeowner needed when buying the home initially would be needed for the modification loan as well. However, each lending institution is slightly different so the need for additional documentation may exist. To get the process going and push the modification through quicker, the homeowner can gather all the information ahead of time.

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- For one thing, the mortgage statement would be required, which is the statement received by the homeowner from the lender each month. The purpose of having this statement is to show the lender that the loan is current, as well as allowing the lender to confirm the homeowner's account number, as well as signatures on the original mortgage loan.

- If there is a second mortgage on the property, a mortgage statement on that account would also be required, which may or may not be with the same lender. The lender would use the second mortgage statement to validate information as with the statement for the first mortgage. Lenders simply want to make sure they understand the loan's status and know the borrower is in fact the homeowner.

- The Authorization to Release is a special for provided by the lender. With this, the lender handling the home loan modification would be authorized to speak on the homeowner's behalf, sort of like an agent.

- A signed Hardship Letter would also be required in most cases for a modification loan. Because the modification was being requested due to a financial strain, lenders want to understand the circumstances, which would be provided in the letter. Typically, a home loan modification is requested because of divorce, death of a family member, or loss of job but there could be other reasons as well.

- W2's for the prior two years would also be required for this type of home loan. Now, for someone self-employed would need the prior two years tax returns. The purpose of this documentation is to show the lender if the borrower's income had increased or decreased.

- Pay check stubs from the past two pay periods would also be needed for a home loan modification, again, showing the lender current income, as well as any increase or decrease. Typically, if income had gone done, then the pay check stubs would support the information provided in the signed Hardship Letter.

- Three months of bank statements would also be needed. With this, the lender would see the average monthly balance maintained, as well as whether the amount of money being deposited and even withdrawn had changed significantly. Lenders want to see a borrower's liquid assets, which is where the bank statements help for a home loan modification.

- Now, if the borrower were self-employed, bank statements would also be required, providing the same information to the lender as with personal banking information.

Using a lender that handles home loan modifications is certainly beneficial in that they handle so much of the work required. During this time, most homeowners are already stressed so allowing a professional to assist would lower stress levels. In addition to looking at lenders other than the one holding the first mortgage, homeowners should first contact the original lender. Usually, the first lender would offer a better interest rate and terms.

No matter the lender chosen, the most important thing is for the borrower to make sure they offer what is known as a "guarantee for return of cost". This means any money out of pocket would be returned in full to the homeowner if the home loan modification were not completed. Obviously, the lender needs to have a solid reputation and experience specifically with home loan modifications.

Instead of allowing the stress of being behind on mortgage payments and getting closer to a situation of foreclosure, homeowners need to remember they have options, such as home loan modifications. This would get the finances on track and eliminate the majority of stress associated with the situation.

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