Loan Modifications: What They Are, How to Request One, and What to Expect

When a homeowner experiences financial hardship and cannot sustain their current mortgage payment, a loan modification — a permanent or semi-permanent restructuring of the original loan terms — can provide a path to keeping the home without the disruption of foreclosure.

What a Loan Modification Changes

A modification may reduce the interest rate, extend the loan term to lower monthly payments, add delinquent amounts to the principal balance, convert an adjustable rate to a fixed rate, or some combination of these. The goal is a sustainable payment level given your current financial situation.

Unlike forbearance — which is temporary — a loan modification permanently alters the original loan terms.

How to Request a Modification

Contact your mortgage servicer — the company you make payments to, which may be different from your original lender — and ask specifically about loss mitigation options. Request their loan modification application materials and hardship assistance process.

You will need to provide documentation of the hardship — job loss, income reduction, medical event, divorce — along with current income documentation showing your reduced capacity and recent financial statements.

What Servicers Evaluate

The modification process evaluates whether a modified payment is sustainable given current income. Servicers use a target payment-to-income ratio. Your payment history on other obligations and overall financial situation are also considered.

Beware of Scams

Third-party loan modification companies that charge upfront fees for modification services are typically scams. You can request a modification directly from your servicer at no cost. HUD-approved housing counselors can assist you through the process for free.

Impact on Credit and Future Financing

A completed loan modification is reported to credit bureaus and noted in your mortgage history. It does not have the same impact as a foreclosure but does factor into future mortgage qualification — lenders will review the circumstances and documentation.

At East Coast Mortgage, we counsel borrowers navigating hardship and post-modification financing scenarios. Book a call to discuss your situation.