Loan Modification: How The Process Works

Loan modification is the process that mortgage holders go through in order to permanently change one of more terms of their loans. Loan modification is meant to allow home owners to afford payments, avoid foreclosure, and keep their homes. The process of loan modification is important for home owners to understand because successfully modifying a home loan can mean the difference between being a valued, respectable borrower and becoming a tarnished, struggling debtor. 

Know Your Options

Home loan holder have two choices when it comes to loan modification. Either the home owner can act on his/her own behalf and carry out every negotiation with his/her lender or the home owner can hire a third party to be the intermediary between the borrower and the lender. If a home owner understands the process of loan modification then there is no need to hire a third party. 

Weigh the Costs

Loan modification is not a free  process. Home owners need to know that there are upfront fees, such as processing costs, associated with loan modification. Home owners may need to spend money on a lawyer to help negotiate terms or someone to appraise the home's value.  

Contact the Lender Before Missing Payments

Once a borrower decides that he/she is going to pursue loan modification, he/she must approach his/her lender with an organized, thoughtful story. A lender will be more willing to consider loan modification if the borrower has not yet become delinquent with payments. A responsible borrower is one that makes payments on time and notifies the lender if payments cannot be made. Responsible borrowers are treated more favorably than irresponsible ones. 

Present a Story

The lender will send the borrower a packet of documents that need to be filled out in order to apply for modification. The borrower will need to complete a hardship letter and submit it to the lender. A hardship letter is the opportunity for the borrower to explain to the lender the exact circumstances that led to an inability to make payments. Hardship letters should be factual, not emotional. Another important part of the borrower's story is a presentation of his/her income, expenses, budget, and plan for the future. The borrower must also be ready to come up with the actual value of his/her home, whether that means hiring someone to appraise the house or using alternative methods is up to the borrower. 

In general, the borrower must showcase that he/she is dependable, reliable, and eager to work to improve his/her situation. The borrower must make a specific request for the new terms that he/she can afford and predict the amount of time that it will take to get back on track.


Home loan modification usually takes anywhere from 30 to 90 days to be complete. The borrower must be patient with the lending company, but must also stay on top of the process. The borrower should continue to check in with the lender until a decision is made.