Loan Modifications: What are Considered Hardships?

Many lenders today are offering a loan modification if you can prove that you are experiencing some type of hardship. A lender usually wants to work with a borrower if foreclosure is the other alternative. A loan modification can help both the borrower and the lender at the same time. The lender usually requires a hardship letter which should outline your circumstances and the reasons you can't afford your home at this time.

Medical Hardships

Illness that caused you to lose your job or reduce your work hours is considered a hardship. You may need to prove this to your lender with a doctor's verification and pay stub information showing a reduction. Also, mounting medical bills may be considered. If you had an unexpected illness or car accident that caused large unpaid bills, you could explain that in your letter. Also, the death of a co-signer could mean you are now unable to make payments on a single income.

Job Loss

In today's economy, job loss is very common. Losing a job or taking a pay cut could easily create a financial hardship in your family. Perhaps you owned your own business that failed and now you are unemployed. You may even need to relocate for a new job. Most lenders would take these into consideration for a loan modification.

Family Status Changes

Divorce or separation creates a difficult financial situation. Household income is significantly reduced and lenders understand this. You can ask for a loan modification to temporarily reduce your payments or interest rates while you get back on your feet, or to change the terms of the mortgage so the payments are affordable for the person remaining in the home. Military personnel who are being deployed or temporarily relocated could possibly have their payments deferred until they return. In addition, if the homeowner of spouse is incarcerated, the lender may temporarily make accommodations so the homeowner does not lose the home.

Adjustable Rate Mortgage

An adjustable rate mortgage has become very popular over the years. Buyers often find them attractive because of a low introductory rate. This rate increases after the term that is predetermined of three, five or more years. Some homeowners who chose this type of mortgage simply did not understand how their payment would be affected years down the road. Some borrowers thought they would sell the home before the rate adjusted, but then their homes depreciated in value and they could not sell or refinance the loan. Some lenders will not offer a loan modification for this reason, since the borrowers are responsible for their decision. But this has become such a common problem that many lenders will work with borrowers who can no longer afford the new, adjusted mortgage rate.