What is a Loan Modification?

A loan modification is an arrangement between you and your lender that alters the original terms of the loan. A loan modification could potentially change the interest rate, the payment, or the terms of the loan. Here are a few things to know about loan modifications and how they work.

Distressed Homeowners

Loan modifications are sometimes offered as a last resort before foreclosure. For example, a homeowner receives a notice in the mail that his mortgage is in default. The homeowner can call the lender and talk about a resolution to the problem. Depending on the lender, they may or may not be willing to do a loan modification for the homeowner. 

Financial Hardship

In order for a homeowner to qualify for a loan modification, he has to prove that he is in a state of financial hardship. In order to do this, he will be required to write a financial hardship letter to the lender detailing their set of circumstances. There is no specific set of circumstances that will always qualify as a financial hardship. Therefore, it is up to the discretion of the lender to decide whether or not to help the homeowner.