A blog from Pacific Mortgage Co

Modifying a loan due to financial hardship

Modifying a loan due to financial hardship

One of the most common reasons for missing a mortgage payment is sudden, unexpected financial hardship. A death in the family, serious illness, divorce, or loss of a job can take a serious toll on personal finances – and leave homeowners struggling to keep up with mortgage payments.

For homeowners facing sudden financial hardship, there are options available to avoid foreclosure. Loan modifications are a permanent restructuring of the existing loan; this is done with the goal of making the monthly mortgage payments affordable for the long term. The following guide can help homeowners better understand loan modifications due to financial hardship.

Homeowners have to be qualified

Not every homeowner will qualify for loan modification. Lenders often have their own set of criteria for who qualifies for modification, such as:

  • Documentation showing homeowners can’t afford the current payment due to financial hardship
  • Inability to refinance the loan
  • Increased debt-to-income ratio

If the lender agrees to loan modification, the new loan will start with a trial period to ensure homeowners can afford the new monthly payment.

Homeowners need proof of financial hardship

When homeowners ask their lender to modify a loan due to financial hardship, they need to provide proof. This will mean presenting documents to the lender such as:

  • Federal and state tax returns
  • Bank statements
  • Pay stubs
  • Letter of hardship

A letter of hardship is a letter written by homeowners to their lenders explaining their current situation and why they need a loan modification in order to avoid foreclosure. Likewise, homeowners will also need to submit an application to their lender with the above information.

Watch out for loan modification scams

Homeowners who need to modify their loans should work directly with their lenders and avoid third party loan modification companies. Most loan modification companies act only as middlemen between borrowers and lenders, making the process longer – and more expensive – than if homeowners did things themselves.

Unfortunately, some loan modification companies are designed to take advantage of desperate homeowners experiencing financial hardships. This can range from charging high fees for things such as mailing paperwork to even tricking homeowners into paying a modification company directly.

Many loan modification companies are less than honest, if not an outright scam, charging high fees for actions you can easily do yourself like mail paperwork and reply to messages from your provider. Homeowners who suspect a scam should report the company to the FTC and other sources.

by Author, August. 18, 2020

Contact Us