Jean's Blog

Ask Jean Thursday: To Modify or Not to Modify?

Posted by Jean

I saw you on the Today Show and you brought up a loan modification. I looked this up on the Internet and everything I read said that you had to write a “hardship” letter in order to qualify for this process. We are not experiencing a hardship at this time but did want to see about lowering our current interest rate. My question is what is required for a loan modification?

-B., Alabama

If you’re looking for a lower interest rate on your loan, you can refinance or go through the loan modification process-which I warn you, can be a long and complicated one. The route you take will ultimately depend on your financial circumstances.

To determine which option is right for you, visit the government’s Making Home Affordable website. There you’ll find two separate questionnaires that will show you if you qualify for either refinancing or loan modification.

Let’s take a look at refinancing first. If you’ve taken the refinancing quiz in the past few weeks or months, you’ll notice that question four-which asks whether or not the amount you own on your first mortgage is the same or less than the current value of your house-has changed. Now, as the question indicates, you can be as far as 125% underwater on your loan and still qualify for refinancing. Until just recently, that number was only 105%. If your quiz results indicate that you may be eligible for refinancing, gather up your paperwork, call your loan servicer or lender and start talking about your options.

Think that loan modification might work for you? Run through the site’s quiz to be sure. The topic you asked about-hardship-is addressed in question three. As you’ll find out by taking the quiz, hardship is a necessary element to qualifying for modification. Something must have happened (job loss, a cut in overtime, an injury, etc.) that has impacted your income between the time you got your mortgage and now. If the quiz says you’re eligible, fill out the hardship affidavit, gather your necessary materials and begin negotiations with your loan servicer or lender.

If you’re in trouble with your mortgage, or you see yourself having difficulties in the future call a HUD approved housing counselor. Make an appointment and then sit down with them to determine which option is best for you. One final note: You should never be paying anyone to modify your mortgage. The only person who can guarantee a modification is your lender or the servicer of your loan