There are a lot of reasons to want to do a loan modification in today’s environment. For one, a lot of people have loan payments that are completely out of control. That said, you shouldn’t agree with those who say that you don’t have anything to lose when trying for a loan mod – there is a cost involved and because of that, there is a huge scam industry currently operating around loan modifications. There are of course many legit people operating in this space, but they are overshadowed by the scammers.

The US Government in the last four years has released a $700 billion bailout scheme, designed to reduce homeowner debt to creditors by virtue of loan modification and refinances. This has helped in a lot of situations but honestly, it helps you the most if you’ve never made a late payment on your loan (more on this later in the article). There are programs specifically for you and honestly, those are the best options. If you can’t qualify for them, you should look at loan modification.

Do You Need Good Credit For Loan Modification?

Loan modification is not partial to your credit score in any way. In fact if you have bad credit and are suffering due to high monthly payments into a mortgage facility when you house value has been reduced, then you are welcomed to apply for loan modification. It doesn’t mean you’ll get approved, but you’re welcome to apply.

In all honesty, however, loan modifications aren’t going through at the rate they once were. People are having a difficult time getting approved.

Refinancing Is A Better Option

I know that it’s impossible for many people to refinance, but honestly it’s the best option. If you can’t qualify right now for a refinance, I’d highly recommend taking a look at improving your current situation.

Increase your credit score, fight hard to save as much money as possible to cover the equity gap on your loan. I’m not going to go into improving your score in detail here, but here are the basics:

  1. Stop making late payments
  2. Start making on-time payments
  3. Pay down your debts (especially your revolving debts)
  4. Make sure you have two open credit lines
  5. Keep old credit lines open
  6. Increase credit lines without using the new available credit

You’d be surprised how much of a difference you can make in a short period of time by focusing on improvement.

The HARP Program

Last year, the federal government came out with a program called HARP that is helping a LOT of people to refinance their homes. HARP stands for home affordable refinance program. It basically states that if you have never made a late payment on your mortgage but are struggling to make ends meet, you can qualify for a refinance. They ask very few questions if you are in this situation. Fortunately, you can be approved even if your mortgage is way underwater. It’s honestly a really great deal.

The HARP program doesn’t reduce the total amount that you owe on your home, but it does allow you to get a much better interest rate, since rates are very low right now. On top of that, the program allows you get rid of bad loans. Many people are using them to get rid of ARM loans and bubble loans that in all likelihood, would eventually cause them to lose their homes. It’s a beautiful program if you find yourself in that situation.

Talk to your mortgage broker if you are wondering if you can qualify for the program. Again, if you haven’t made a late payment on your mortgage, chances are high that you will qualify.