Avoid a Foreclosure with a Loan Modification

Most of us have heard about the recent flood of foreclosures resulting from changes in the housing market. Now, many of the homeowners who find themselves threatened by foreclosure are seeking assistance in the form of loan modifications from lenders and other parties. Recent reports show that the demand for loan modification programs is growing, leading to a bottleneck in foreclosure prevention programs for many of those using do it yourself loan modification options to try to save their investment in a home within a certain timeframe. As American households continue to seek help, government agencies have stepped in with some recommendations for how to establish an affordable mortgage payment schedule. Here are some of the things financial experts recommend for obtaining a mortgage loan modification.

1. Collect All Necessary Paperwork

When it's time to look for foreclosure help in the form of a loan modification, you should start out with the proper documentation in hand to show lenders and other parties the financial details of your situation. This starts with having the current mortgage payment schedule handy. You will also want to have paperwork on hand for a home-equity line of credit (HELOC) or second or third mortgage to be able to see what kind of equity you really have in your home at any given time. If a property is part of a collective association, such as a condo or townhouse, those homeowners' fees should also be included.

Along with the documents on home equity and a mortgage payment schedule, each responsible member of your household will want to have appropriate income documents available. Just like when the original mortgage was set up, having tax records of income is critical for negotiating the loan modification process. Since the writing of the original mortgage, your household's income situation may have changed. You should collect pay stubs for salaries or weekly paychecks, as well as all applicable self-employment documents for sole proprietors or those working primarily as 1099 contractors. An accurate assessment of property taxes should also be included, and government officials recommend bringing paperwork related to any other active loans, including student loans, car loans, credit card statements and more, to provide a complete view of a household's finances.

2. Do a Self-Assessment and Decide on a Loan Modification Process

Another critical step in the loan modification process is to decide how much legal oversight your household needs. Those with the resources to bring in qualified counsel can benefit from having an attorney look over documents from a party providing assistance with the loan modification.

In addition, recent news reports indicate that government lender Freddie Mac is recommending households create a "financial statement" in the form of an essay that details their financial situation, such as any financial hardship you are dealing with and what you expect for the future.

3. Hook Up with Loan Modification Assistance and Evaluate Professional Offers

If a household is choosing to rely on an outside third party to help decipher a loan modification kit or similar tool, that's not necessarily a bad idea. Just as the household received some professional assistance with the original mortgage, this kind of assistance can be good for a loan modification program. However, public officials warn consumers to be wary of any loan modification scams in which third-party firms make false promises up front, but fail to deliver immediate assistance after receiving payment for services. You should hold third parties to professional standards by staying engaged in the process and refusing to pay up-front fees without a reasonable assurance of a successful outcome.

If you are looking at a potential foreclosure, the above steps will get you started on the road to a brighter future. A practical loan modification will save your credit and keep you in your home. These programs are becoming a vital tool for helping us stay afloat in tough times and saves communities from the damage a rash of local foreclosures can bring.