Loan Modification How To Guide
If you are looking for a way to reduce your monthly mortgage payments, you might consider requesting a loan modification from your lender. A loan modification is a change in the original terms of your loan, resulting in a more affordable monthly payment. These programs can help you catch up on missed payments, change or fix your interest rate, or extend the number of years you have to repay.
Should You Hire a Loan Modification Firm?
There are for-profit companies you can hire to represent you in this process, but often the same results can be achieved by contacting your lender yourself. And wouldn't you rather put your money toward your home investment than spend potentially thousands of dollars in fees to an outside firm? In addition to saving money, working directly with your lender or through a free housing counselor can help avoid scams. Visit PennyMac's Helpful Websites page for more information on credit and mortgage counseling
Who Can Get a Loan Modification?
Loan modifications are appropriate for borrowers who have experienced a hardship such as a reduction in income, a reduction of rent received on an investment property or a change in mortgage interest rate that makes their new payment unaffordable. Since the lender still must make a return on the loan, the reality is that they will likely not be able to modify a loan in the case of a substantial loss of income (permanent job loss, rental property vacant for a long period of time). But no matter what your financial situation, you should still contact your lender to explore all options to avoid a foreclosure and the damage it can cause to your credit rating.
Talk to Your Lender
If you are behind on your loan payments, the first thing you should do is contact your lender. Do not ignore letters and phone calls from your mortgage company. Communication is necessary to show that you are interested in working with them on a solution to keep your home. Tell your lender that you would like to discuss a loan modification. The information below will help you prepare.
Three Steps to a Loan Modification
There are generally three things you'll need to do when obtaining a loan modification:
- Step One -- Assemble Financial Paperwork
- Step Two -- Write a Hardship Letter
- Step Three -- Contact Your Lender
If you have a loan with PennyMac, the good news is that our Home Loan Specialists can walk you through Steps One and Two over the phone in about 15 minutes. You can even listen to a typical phone conversation as we walk a customer through the process.
If you are not a PennyMac customer, keep in mind that lenders welcome the opportunity to assist borrowers who are truly committed to staying in their home, because reducing the number of foreclosures is in the mortgage company's best interest, too. When a borrower has missed payments, they often fear an uncomfortable phone call, or worse with their lender and then are surprised at how easy the process can be. Remember, there is no need to hire outside assistance. You can follow our Guide to Loan Modifications for Non-PennyMac Customers to prepare yourself, and then contact your lender.
