If you’re struggling under the weight of an overwhelming mortgage and you’re worried about foreclosure, you have a few different options to save your home. You can refinance the property, modify the mortgage loan agreement, or even file for bankruptcy.


Depending on your situation, you may be able to combine these options to avoid default, lower your payments, climb out of unmanageable debt, and keep your home. It’s important to note, however, that even though filing for bankruptcy can help you start fresh, it will damage your credit.


If you’re looking to keep your home and avoid a hit to your credit report, loan modification may be your best option. To help you get a better idea of what mortgage loan modification entails, Ron Lundquist, the Twin Cities leading bankruptcy attorney, explains what you need to know below.


What Is a Mortgage Loan Modification?

When you’re struggling to repay your mortgage, defaulting on the loan isn’t your only option. Instead, you can opt to make a few adjustments to your loan if your mortgage lender agrees to alter its terms. This is known as loan modification.


When you request to modify your loan, depending on your circumstances and ability to repay, your lender may choose to:


●        Lower the interest rate on the loan

●        Extend the loan’s repayment terms

●        Convert the loan to a fixed-rate mortgage (if you currently have an adjustable-rate mortgage)

●        Forgive some of your principle (this isn’t likely)

●        Defer some of your principle

●        Add arrears to the back end of your loan (finance your missed payments into the back end of your existing loan)


Regardless of the modifications your lender agrees to, any alterations made are designed to make your mortgage payments more manageable. That way, you afford to continue repaying the loan as agreed.


Getting a Loan Modification From Your Mortgage Lender

Because foreclosure is costly for lenders, many are willing to agree to loan modifications to avoid the foreclosure process. However, you must apply for a loan modification. In your application, you’ll need to supply information about your current situation, your income, and your monthly expenses. You’ll also need to provide proof that:


●        You currently live in the home and it’s your primary residence.

●        You have enough income to continue making mortgage payments after the modifications go into effect.

●        You’re experiencing a financial hardship that interferes with your ability to pay your existing mortgage as agreed.


In most cases, you’ll need to go through a trial period plan, which usually lasts for approximately three months. This trial period is designed to determine whether you can afford to continue making the modified payments.


Making Loan Modifications During Bankruptcy

If you’ve already filed for bankruptcy, it may still be possible to modify your mortgage loan to make your payments more manageable. Most people deal directly with their mortgage lenders, generally bankruptcy attorneys do not get involved in the loan modification process.


Considering Filing for Bankruptcy? Schedule a Consultation Today

If you’re considering filing for bankruptcy, it’s important to understand all of your options for getting out from under overwhelming debt. While you can certainly file for bankruptcy to avoid foreclosure, a loan modification may be a better option.


To discuss your circumstances and whether filing for bankruptcy is the best option for your needs, schedule a free consultation with Ron Lundquist, Attorney at Law today. You can also call our Eagan, MN office at 651-454-0007 or send a message for more information.