How to apply for a mortgage modification if you are having difficulty affording the monthly payments

Financial hardship can strike homeowners at any time, making it difficult for them to keep up with their loan payments. Whether it’s a job loss, illness, or divorce — if you’re having trouble paying your mortgage, a loan modification may be the best solution for you.

If you qualify and can handle the new terms that come with a mortgage modification, you can avoid foreclosure on your home. Ideally, a mortgage loan modification allows you to keep your home and get on a more solid financial footing.

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Loan modification refers to permanently changing the terms of your existing mortgage loan rather than replacing it with a new loan as you would if you refinanced. If your mortgage payments are higher than you can afford, you may apply to your lender for a mortgage modification, which will lower your payments to an amount you can handle. In some cases, a loan modification will require a trial period of several months before it becomes permanent.

Your lender will review your situation to determine the type of loan modification terms that are most likely to help you manage your mortgage payments. Some options include:

• Reducing the mortgage principal and interest rate portions of your monthly payments.

• An extension of the repayment term to reduce the monthly payment, sometimes to a 40-year loan.

• Add the overdue amounts to the principal balance and recalculate the monthly payment to bring your loan up to date.

• Give up some of the balance to lower your monthly payment.

• Change your loan term from an interest-only or adjustable-rate mortgage to a fixed-rate mortgage to stabilize your payments.

Learn more: Adjustable-rate mortgages versus fixed-rate mortgages

Loan modification requirements vary by loan program and lender, but in general, you need to meet two conditions. First, you must be able to prove the cause of your difficulties, such as loss of income or unexpected expenses due to the death of a family member, a natural disaster, job loss, divorce, or some other circumstance that affects your ability to make your mortgage payments. Your current.

Second, you must prove your ability to make the modified mortgage payments. Similar to applying for a new loan, your mortgage lender will want to review your financials, income, assets and credit.

Read more: 6 Options for Dealing with Your Mortgage When Getting a Divorce

If you find yourself in financial trouble and can’t make your next mortgage payment or are late with your payments, the first step is to contact your lender. Depending on your circumstances, your lender should discuss several options with you, including loan modification.

You can also contact A HUD Certified Housing Counselor in your area who can help you understand your options, given your personal financial situation.

If loan modification is an option, you will need documentation to apply, including:

• Evidence of why you are suffering, such as a death certificate or information about a natural disaster that changed your financial situation.

• Securities showing low salary or high expenses.

• Recent statements from your bank and investment accounts.

Loan modification options vary by loan program and lender, so it’s best to start by contacting your mortgage provider if you’re having financial issues. In general, loan modifications are available through the following loan programs:

Conventional loans owned by Fannie Mae and Freddie Mac

The Flex Modification Program is available for primary residences and second or investment homes that have loans owned or partially owned by Fannie Mae or Freddie Mac. The flexible modification payment must be less than the current payment, preferably by 20%, and borrowers must prove their income and stable, verifiable income.

The homeowner must have had the loan for at least 12 months. Borrowers must be at least 60 days delinquent, or if at least one borrower lives in the home, the loan must be in imminent default even if payments are current.

Through April 30, 2025, borrowers with an FHA loan who are 61 days or more delinquent have several options under the COVID-19 Recovery Program. Borrowers who can achieve a 25% reduction on their monthly payments and interest payments may qualify.

Other programs are available to FHA borrowers to lower payments and finance delinquent amounts. In 2025, the FHA is expected to return to its previous loan modification program, which includes three options. First, you can lower your payments and add delinquent amounts to the balance while extending the loan term. Second, you can elect a partial claim that adds an interest-free lien on the property to cover delinquent amounts. Third, you can choose a combination of the two programs.

VA borrowers who are struggling to make payments can request a loan modification, which can include extending the loan term, lowering the interest rate, or including outstanding loan amounts in their loan with a new repayment schedule.

Borrowers with a USDA loan who are at imminent risk of default may be eligible for a loan term extension of up to 40 years or a lower interest rate.

Read more: How does a 40 year mortgage work?

While a loan modification can be a way to save your home from foreclosure, this solution to financial difficulties has some advantages and disadvantages.

• You can continue to own your home since loan modifications are permanent changes.

• You may be able to refinance in the future with more favorable terms.

• Lower payments can help you recover financially from the crisis.

• You may pay less interest if the rate is reduced without extending the term of your loan.

• A loan modification typically does not require closing costs, while a refinance does.

• Your credit score can drop depending on how your loan modification is reported (although not as severely as if you were facing foreclosure).

• Missed and late payments before your loan is modified will remain on your credit report.

• If your loan term is extended, it will take longer to pay off the loan in full, and you will likely pay more in interest over time.

• If the payments aren’t low enough to help you get back on your feet, or if your finances don’t improve, you could still lose your home to foreclosure.

Dig deeper: What to expect when facing foreclosure

If you’re having trouble paying your mortgage, there are other options available besides loan modification, including:

• patience. Mortgage forbearance is a temporary solution for distressed homeowners. Your lender may allow you to pause or lower your monthly payments for a specified period. However, you will eventually need to repay the paused payments, which could result in a large lump sum due at once.

• Refinancing. If you have good or excellent credit and enough equity in your home, you may be eligible to refinance your mortgage into a new loan with lower payments. However, refinancing may not always lower your payments, especially if mortgage rates are higher now than they were when you got your current loan. You’ll also need enough income to qualify for the new payments. Additionally, refinancing requires you to pay closing costs.

• Short sale. Consider a short sale if you owe more on your home than its current value. Your lender will have to agree to pay off your mortgage with the proceeds from the sale of your home, even if the amount does not cover the full amount. In some states, your lender can sue you for the difference if you don’t sign a waiver relieving you of the debt.

• A deed in lieu of a mortgage. If you can’t afford modified payments on your mortgage, you may want to ask your lender to accept a note in lieu of foreclosure, sometimes called “cash for keys.” In this case, you will give up your home but avoid the foreclosure process, saving you time and money.

Learn more: How short sales work in real estate

If you cannot provide proof of financial hardship that leaves you struggling to afford your monthly mortgage payments, you may not be eligible for a mortgage modification. Additionally, you may not qualify if you cannot provide proof that you have enough income to make revised payments.

A loan modification can lower your credit score — but usually, by the time you apply for a mortgage modification, you’ve already missed one or more loan payments. These missed, partial, or late payments have likely already damaged your credit. A loan modification will likely be less harmful to your credit score than a foreclosure.

You are not required to hire an attorney to modify your mortgage loan, but you may want to consider doing so if you are unsure of the terms of the modification. Alternatively, you may contact a HUD-certified housing counselor for professional advice.

This article was edited by Laura Grace Tarpley.