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Budgeting & Finance Guide

Lowering Your Mortgage Rate by Modifying Your Home Loan


In our tough economy, interest rates can be our worst enemy when it comes to owning a home. It’s making it difficult for us to even afford a home and it seems as the days go by more and more home are being foreclosed on.

We all try to find ways to prevent that. Paying companies thousands of dollars to have them “modify” your home loan and lower your payments. Well stop! You are able to do it yourself and you’ll save a ton of money doing so.

First, make sure you balance your expenses and see where the problem starts. If on that sheet where you write all your expenses and your incoming income monthly and there is a huge deficit, then you need to see what you can deduct to make your expenses and income more even.

Then, give your lender a call, tell them you are interested in doing a Loan Modification and make that clear to them because some reps on the phone make the mistake and write Short Sale on the notes which is what we are not trying to do.

After you tell them what are your intentions, ask them what it is they need from you to submit your “hardship” package and where you send it in. (Remember to keep notes on all conversations with the lender, so it’s proof that you have done something in lowering your payments and also proof that you want to keep your home.)

The hardship package usually consists of: Hardship letter, financials (that’s were your income and expense sheet kicks in), two months worth of any income you have (pay stubs, profit and loss, rental agreements, child support, social security, un-employment, etc.), two years Tax Returns and W2’s and finally two months Bank Statements.

After you gather everything, type up your hardship letter and be honest, don’t just say payments are high, explain why the payments are high. Did you recently have a loss in income, family member became ill, over time hours have been cut, children started school and your income cannot support their books and tuition. Be honest and the lenders will notice that.

Now, after this is complete, submit your hardship package to the lender and make sure you keep the fax confirmation page to ensure you have submitted the documents and it went through with no errors. Now, it’s the wait time, call within 2-3 days to see if your hardship package has been received, some Lenders are over-loaded with the amount of requests that they have for “modifications” so stay calm.

If they haven’t received it within those 2-3 days give it a week or ask them, what’s their turn-around time for receiving and imaging documents into the system. From my experience, I’ve seen them get received and imaged into their systems from 2-3 days to about 1 1/2 months. So time varies with all lenders.

As soon as your documents have been imaged, ask them what’s the turn around time for completion and if a negotiator is assigned to your file. What process is it in and if it is active in review for the modification. Ask lots of questions, they may tell you, “it’s in review, no updates,” but don’t let that stop you. Keep calling at least 1-2 times a week to find out what the status is. If you don’t call as often you won’t know if they have requested additional documents and that’s what you want to keep up with.

Some lenders are strict, to the point if you don’t send in the documents they’ve requested, they will kick your file out of review and you will have to start all over. I’m not saying this process only takes 1 month to 2 months, this is a long process (unlike online payday loans that are approved in less than 3 minutes), so you should stay dedicated. I’ve seen some loans get modified in 3 months and some in 9 months. So stay calm and just remember to stay focus and keep up to date on calling your file.

When the negotiator or investor has come up with a solution, they will either tell you your file has been denied or approved. If approved, as for the terms and the length of which your new interest rate will take place. Ask for the documents you need to submit and when your new payment will be. Remember, when approved they give you a certain time to gather what ever information they have requested.

If not submitted that can mean automatic denial of a application, because they would consider the file to be “incomplete.” If denied, don’t stop there! Try it again, find out why your file was denied. What reason, there is always a reason. If they don’t tell you, ask to speak with a supervisor or the negotiator that was handling your file. Don’t give up, just resubmit with updated documents and try again.

This is time consuming, hectic and stressful, but in the end, if you stick with it and don’t give up, you’ll be rewarded with lower payments, lower interest rate and possibly a principal reduction! Just give it a try yourself and don’t spend thousands on others to do work you can do yourself!