A loan modification is a written contract between you and your lender that changes the terms of your loan. The specifications of the new loan usually stipulate a lower monthly payment, an extension in the repayment timeline of the loan and a rate reduction. This benefits the homeowner as it allows you  to keep your home while giving you a lower monthly payment, thereby easing your financial burden.

You should consider a loan modification if you have a stable income that allows you to make a lower mortgage payment on time. This is also a good option for you if you want to keep your home and if you experienced a sudden loss of income that caused you to fall behind on your payments. There also are those homeowners in the throes of bankruptcy, but are unable to meet the requirements set in bankruptcy court.

Homeowners who are in any of the above situations are usually perfect candidates for a loan modification agreement.

Loan modification is determined by the amount owed on the loan, the amount that is delinquent and the borrower’s ability to make the new monthly payment. This option is preferable to most lenders in lieu of others, including a short sale, in which the home is sold for less than its value to ensure that the lender does not suffer a larger financial loss than necessary.

There also is the option of forbearance, in which monthly payments are temporarily suspended until the homeowner can regain some stability.  An assumption is still another option, though lenders do try to shy away from doing this when they can.

A loan modification is preferable for both lenders and homeowners as it allows the homeowners who have fallen behind on mortgage payments to catch up and remain in their home. It benefits lenders because they are able to recoup the funds loaned for the home.

If you think you are a candidate for a loan modification, contact your lender and ask what kind of documentation you will need to submit in order to get the process started. Once you qualify, it is important to stay timely in submitting any documentation needed to modify your loan and give you relief from mortgage payments you can no longer afford.