5 Things That Can Harm Your Loan Modification Application

Loan modification applications are challenging because most people seeking modification are doing so because they originally secured an unfavorable loan. Unfavorable loans indicate a person had a bad credit report, and that person will be viewed skeptically by a modification lender just the same as the primary lender. If your credit score has improved, you may be able to secure a better loan through the modification process.

#1 Current Loan not in Good Standing

Modifying a loan that is delinquent and nearing default is complicated. Your new lender will be concerned you cannot afford the loan and are heading toward bankruptcy. As such, the lender will be less likely to extend you a good rate if you are able to achieve financing at all. You may need to seek a consolidation loan for a bad credit borrower if one or more of your loans is not in good standing, and you are using modification to avoid default.

#2 Current Lender Unwilling to Modify

Your current lender will need to close the loan with you by accepting a payoff from the new lender. Most primary lenders will be willing to do this, but some will exact much higher fees than others. Your prepayment fees were listed in your original loan contract. Only modify if the new loan will save you money even after these fees are assessed. Your primary lender may also require you to bring your loan current if you have outstanding payments.

#3 Recent Job Changes

Some people aim to modify a loan if they have a new influx of income. They can afford higher monthly payments, and their income to debt ratio is more favorable. However, a lender will typically be wary of extending a loan based on an income that is very recently obtained. It is best to have income stability in order to gain full benefits of listing a higher income on your application.

#4 Too Much Debt

Consolidation lenders may be willing to work with you if you have a large amount of debt. Other loan modification lenders, however, will be resistant. To lenders, a person with too much debt is one that could go bankrupt at any time. If this occurs, the lenders will have a small chance at recovering in full. Reduce your debt by paying down balances as  much as possible before seeking any modification loan.

#5 History of Modifications

The company modifying your loan does not want you to turn around and modify it again, costing them valuable profit. As such, they will be wary if this is not your first modification. Modification negatively affects your credit score. Only pursue the activity in a unique situation. The right circumstances include: modification to avoid default or bankruptcy or a one-time modification due to a drastic change in your application status. People who make a habit of modification will become high risk borrowers and be denied the opportunity in the future.