Home loan modification for the unemployed

In June 2011, approximately 9.2 percent of all U.S. residents were unemployed, reports the U.S. Bureau of Labor Statistics. If you’re among those dealing with the effects of a job loss, making payments on your mortgage could prove difficult. Fortunately, loan modification programs for the unemployed exist to help you avoid foreclosure.

What Is a Loan Modification?

For lenders, foreclosing on a home is a costly process; paying for attorneys, maintaining the property and handling the sale requires time and money than lenders don’t want to invest if the situation is avoidable. Loan modifications are an agreement between you and your lender to change the terms on your home loan to avoid foreclosure. The lender typically agrees to extend the term of your loan or modify your interest rate to lower your payments. As a result, the amount you owe each month decreases, making it easier for you to afford while collecting unemployment benefits.

How Do I Get a Loan Modification?

· Talk to your lender’s representative. If you’ve fallen behind on payments, it’s likely that someone has already written to you or called you about your loan. This representative for your lender can advise you about your modification options.

· Call customer service. If no one from your lender has contacted you, call the customer service number for your lender and ask to speak to the collections, special assets or loan workout department.

· Speak to Your State Unemployment Office The same office that issues your unemployment benefit checks can help you determine if your state has any assistance in place to help you with your modification. Some states have established agencies to help the unemployed with the modification process through counseling services. In some cases, you may even qualify for a special program that reduces the amount you owe on your home or allows you to make interest-free payments.

How Do I Qualify for a Modification?

Each lender has established policies for loan modifications. Often, you must be a set number of payments behind on your home loan to qualify. Your lender may also first have you participate in a temporary forbearance program that requires you to make several small payments prior to receiving a permanent modification.

What Do I Need to Consider About Loan Modifications?

While loan modifications can save your home, they do have some drawbacks that you need to keep in mind:

· Fees Lenders usually charge fees for modifications. The lender may require you to pay the fee up front or finance it into your loan amount.

· Taxes If your loan modification involves any type of principal reduction or “debt forgiveness,” the amount forgiven is considered a form of income and may be taxable.

· Credit Scores Getting a loan modification won’t erase the late payments from your credit report.

· Restrictions Some government programs prohibit the sale of your home during the time that you receive benefits from the service. If you have to move, you may pay a penalty.