What Is a DIY Loan Modification?

Loan modification is the process of rearranging your loan contract in order to make it more affordable. Modification is not a favorable situation for the lender, who will usually lose at least a portion of expected profits. As such, the process requires negotiation in order to get the lender to agree to a new arrangement. You have the option of using an outside financial organization to help with your modification, or you can elect to do it yourself.

What is a DIY Modification?

A DIY modification simply means you will be handling all of the discussions and arrangements without a financial agent or lawyer getting involved. You will personally contact your existing lender to discuss the reasons you are seeking modification. This typically takes one of two forms. The first is a hardship request, meaning you speak with your lender about the fact you cannot continue to make payments as they are scheduled. The second option is to discuss market factors to show your loan is not competitive compared to others. Both of these tactics will require substantial evidence and knowledge.

What do I Need to Know?

You will need to understand, foremost, the terms of your existing contract. When you signed your loan, you agreed you would not modify it in the future. All loan contracts address this in some way, and most provide for given fees if you should break the contract through prepayment or modification. Next, you will need to have a solid understanding of the possible loan quotes you could obtain elsewhere. Part of the negotiation will be convincing your lender you will pursue other options if this effort fails. Those other options will be a basis for the terms you ask of your lender. They will also be your fallback plan in case the modification fails.

What are the Alternatives?

There are two primary alternatives to DIY loan modification with your existing lender. The first is to use an outside lender to take out a new loan, paying off your current loan and any penalties. The second option is to take the situation before a judge to have the payment restructured, which is only possible in rare situations where you are bordering on bankruptcy. Both of these alternatives are less favorable than going straight to your current lender. They will be costlier in the short-term. They will also show up as black marks on your credit in the future.

Which is Best?

If you can carry out a successful modification yourself, you will save money in fees paid to an agent or attorney and save points on your credit score. Unfortunately, many people will find the contract negotiation process confusing and will need to seek advice from a professional. If you are worried about signing a contract you do not fully understand, it is better to speak with an accountant, attorney or financial adviser during the process of your modification. On the other hand, if you are confident in the deal you have arranged, then you can proceed knowing you succeeded with a do it yourself approach.