Loan modification may be the best option if your monthly payments are more than you can afford, but you do not have significant negative equity in the property. Most loan modifications involve a temporary reduction in the monthly payment amount, called loan forbearance, or a permanent interest rate reduction that lowers the monthly payment amount for the life of the loan. To qualify for a loan modification, the borrower must prove the inability to make the current loan payments due to financial hardship. However, he/she must also demonstrate sufficient income to manage the reduced payments. (A person who is unemployed will not qualify for loan modification because he/she will not be able to demonstrate the ability to consistently make the lower payments.) Loan modifications rarely, if ever, involve a reduction in the principal balance of the loan. If the property in question has significant negative equity, a loan modification may be a temporary "fix" allowing the borrower to stay in the home, but will not solve the long term problem of a property that is worth less than what is owed on the loan(s). |