How to Apply for a Home Loan Modification

How do I apply for a home loan modification under the Making Home Affordable program? What steps do I need to take when applying for a mortgage modification?

On the surface, this seems like an easy question to answer. But unfortunately, there’s enough misinformation posted online to keep homeowners scratching their heads in dismay. So I’ve spent the last couple of hours gathering some information to help you. Here is how to request a loan modification under the Making Home Affordable program.

1. Check Your Eligibility for Loan Modification

If you’re trying to modify your home loan through the government’s Making Home Affordable program, you should start by researching their eligibility requirements. Here the are in a nutshell:

• The home in question must be your primary residence (not an investment property).
• The current balance owed on your first mortgage must be equal to, or less than, $729,750. If you used a jumbo loan to buy your home, and the balance is above this amount, you’re probably out of luck.
• You must be having serious trouble paying your mortgage. Maybe your payments increases as the result of an ARM loan resetting. Maybe you’ve lost your job. Or maybe you’ve suffered an illness that brought major medical expenses. (If you make enough money to cover your mortgage payments, but simply want to reduce your payment, you probably won’t qualify for this program.)
• You must have obtained your home loan prior to 1/1/09.
• The payment on your first mortgage must be more than 31% of your gross income (before taxes).

If you meet all or most of these criteria (particularly the first four), then you might get approved for a mortgage modification. This brings us to the next logical question: How do I apply for a home loan modification under this program?

The next step is to start talking to somebody about your situation — either a HUD-approved housing counselor, or your current mortgage lender / servicer. In order to prepare for this dialogue, you need to start rounding up some financial documents.

2. Gather Documents Needed to Apply

Here’s a video that explains the paperwork you’ll need. Below that, you’ll find a helpful checklist you can print out for future reference.

As the video explains, there are certain documents you’ll need to apply for a loan modification under the Making Home Affordable program. Here’s a checklist of items discussed in the video. It would be wise to print this out.

1. Your monthly mortgage statement. This will help the loan servicer locate your file.
2. Your most recent pay stubs (for the last few months).
3. Your most recent W-2 forms and tax-return statements. They will use this to measure your income level, and thus your eligibility for the program.
4. If you have a second mortgage, a home equity loan or HELOC, or any other type of loan secured by your house, you’ll need that paperwork as well.
5. Round up your most recent statements for other debts you are carrying, such as credit cards and student loans. They need this to measure your overall debt-to-income ratio.

These are the minimum documents needed to apply for a home loan modification, so it’s a good starting point. But it’s possible that the loan servicer will ask for other items as well. Be prepared for this, and take plenty of notes during the phone call. And speaking of notes…

3. Start a Loan Modification Journal

When you apply for a mortgage modification, you’ll probably end up speaking to several different people on many different occasions. You might speak to them on the phone, by email, or by sending documentation via postal mail. This is why I recommend starting a loan modification journal. It doesn’t have to be anything fancy — a small notebook will work fine. The point is to document every conversation you have, every document you have submitted, and each person you’ve spoken to. This will help you stay on track.

4. Be Persistent but Realistic

You need to be patient but persistent with this process. It might be frustrating, time-consuming and tedious. And there’s still no guarantee that you’ll be approved for a modification. But the fact that millions of homeowners have succeeded with this process should motivate you. You have nothing to lose by trying, and plenty to gain. Along the way, you’ll probably encounter some bitter homeowners who tried and failed with this process. In most cases, you’re better of ignoring these folks. They have nothing to give you but negative energy.

This article explains how to apply for a home loan modification the right way. If you have additional questions or want to learn more about the program, you’ll need to visit the Making Home Affordable website (the one mentioned in the video). The web address is www.MakingHomeAffordable.gov.