A home loan modification is a financial construction in which an existing mortgage is changed to make it more comfortable for borrowers, ensuring they can continue to make their repayments. Essentially, borrowers ask their lenders, often through a company like Golden State Financial Group, to make changes to the existing loan terms because they are facing some sort of hardship. In so doing, they ensure that they don’t have to go through foreclosure, and the lender ensures they still get their money.
Golden State Financial Group on What Home Loan Modifications Are
These plans are part of the Home Affordable Modification Program, which was developed in February 2009, at the height of the foreclosure crisis. The aim was to ensure people who struggled to make their repayments would be able to come to a more affordable arrangement. The standards have been federally set under this program.
Someone who is struggling to make their home repayments because of hardship can use these programs to avoid foreclosure. Their home loan is restructured by lowering interest rates, extending the loan term, and even writing off some of the principal. The aim is to make sure that what the borrower pays stays below 31% of their gross monthly income.
Qualifying for a Home Loan Modification
Not everybody qualifies for these types of programs. Lenders do have their own in-house modification programs, but if someone applies through the federal arrangements, they must:
Have taken out their mortgage before January 2009. This stops opportunists from taking advantage.
Be the home’s owner-occupant.
Be in negative equity.
Be in significant financial hardship as a result of reduced income, medical bills, increased mortgage repayments, and so on.
Currently make payments towards a mortgage that are more than 31% of their monthly gross income.
Prove they can make the new repayments.
The goal of a home loan modification is to ensure you can repay a loan, not to stop you from having to pay it at all. If you are in such financial distress that you cannot make any repayments, then other solutions will have to be found.
During the application, people need to provide a wealth of information, including:
Proof of gross income.
Proof of assets.
Proof of monthly payments.
Proof of any other outstanding debt and payments made towards that.
Furthermore, applying for a loan modification means writing a financial hardship letter. This letter needs to explain, in a short and concise manner, why the individual is in financial distress and what has caused this. Once all this information has been collected, it must be sent to the lender with a request for loan modification, which they will then review. Asking for the help of a company like Golden State Financial Group is often a good idea, as it means they can check whether all the necessary documentation is present and whether it is offered in the right way. This avoid being rejected and having to start to process again.