Is a Loan Modification Similar to a Refinance? by Angie

A loan modification is not the same thing as a refinance. Getting a refinance is just like re-buying your home. You are refinancing your current loan into a completely new one. This requires a new home appraisal and is contingent upon your current level of equity. A loan modification takes one or more aspects of your current loan and changes it so that you are able to make the payments. It is your same loan, not a new one.

So how do you know if you should be researching loan modification? Well, if you are currently struggling to keep up with your mortgage payments and don't think you will qualify for a refinance then you are probably the ideal candidate. The keep thing banks will look at is the details of your current hardship and your potential ability to make your new payments. While it is in the best interest of the bank to keep you in your home, they also need to receive payment in order to stay afloat. It is a fine balance.

When you begin the application process you will need to provide all of your financial information, from tax returns and pay stubs to copies of your credit reports, current debts and monthly bills. You will also be required to write a hardship letter. This is your opportunity to give the personal details of your current situation along with your plan for financial recovery. This can be the most important part of your application!

Loan modification is a lifeboat for families that have missed payments and are facing imminent foreclosure. Missed payments can be rolled into the loan modification and late fees waived. With current federal programs offering assistance to banks that provide loan modification to its struggling borrowers more and more banks are willing to consider modifying home loans. You do not already have to be in default to be considered for a loan modification. In fact, jumping ahead of any potential financial hardship and getting your affairs in order is a great way to avoid loan default. If you can show that you will soon be unable to pay your mortgage you can be considered for a loan modification.

Loan modification will not affect your credit score and is your best defense against foreclosure. In these troubled times maintaining your day to day life in the comfort of your own home is often the most important thing you can do. You can do a loan modification on your own by researching the details of the process at your current bank or online. You can also use your bank or a reputable loan modification specialist. Be wary of anyone who wants cash up front. As with any new trend, there are people looking to make a profit on your misfortune.

Before you panic at the thought of financial ruin consider a loan modification as part of keeping your financial situation manageable. It would be the best decision you make.

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Download and print out this home loan modification checklist right now. It will prepare you to be approved no matter what loan modification program you use.