Random Topic: Maximize Your Loan Mod’s Odds

The worst thing about Loan Modifications is that they can be declined. However, there are things you can do to increase your odds of being approved. Here’s a step-by-step plan for doing so. Time is of the essence, so start immediately:

If you aren’t very familiar with loan modifications, read my blog post on the topic (link).

Here are the specific steps I would take, in order, if I was facing foreclosure:

If I had not yet applied for a loan modification, or if I’d already been declined and was going to apply again, I’d follow these steps:

  1. Credit scores matter. So today, I would follow the steps outlined in my DIY Credit Repair blog post (link), with two changes:
    • I would pay to overnight the letters to the credit bureaus. Time is of the essence.
    • I would NOT contest the late payments by the lender foreclosing on me. I wouldn’t want to upset my lender by contesting their late payment reporting.
  2. I would find out my deadline for applying for a loan modification by calling my bank’s Loss Mitigation Department. I would circle the weekend before the deadline in red marker on my calendar.
  3. I would start my loan modification application. There are a lot of pages and supporting documentation needed and it takes a few hours. Loss Mitigation can tell you where to find the application.
    • Fill out all the information that will not change between now and the application deadline. Examples: I would fill out my address and income. I would not fill out my checking account balance.
    • Make a note to save any needed documents you don’t regularly keep. For example, if you normally toss checking account statements, save them.
  4. Income matters. I would get a job with documented income–ANY job. A minimum wage job that barely covers daycare will help a loan mod much more than having no documented income. If I was being underpaid or hated the work, I’d just keep looking for something better during my off-hours. (Any time my documented income increased, I’d notify my lender ASAP.)
  5. Unpaid debt matters. I would pay down every penny of debt possible between now and the bank’s decision about my loan mod:
    1. My highest priority would be to not let anything new go to collections.
    2. My second highest priority would be to pay down revolving debt that appears on my credit reports. (Revolving debt includes credit cards and other debt where the balance can go up and down.)
    3. If I got all revolving debt paid off, I’d look at my remaining loans. If any had a low enough balance so that I could pay it all off early, I’d do that.
    4. I would not bother paying off debt that has already gone to collections. It doesn’t help credit scores at all. If I completed steps a, b, and c with money left over, I’d save it. If my loan mod was declined, having savings would be helpful.
  6. The weekend before my application deadline, I would finish my loan mod application.
    • Doing this a couple days before deadline allows time to overcome any problems without missing the deadline.
    • I’d make sure EVERY relevant blank is filled out with accurate information and all requested documentation is provided. Incomplete applications get declined automatically. If I was unsure how to fill out a blank, Monday morning I’d call the Loss Mitigation Department and ask.
  7. On Monday morning, I would call 888-995-HOPE and ask for their help. HOPE’s involvement is free and keeps banks honest, therefore increasing odds of approval.
  8. I would then submit my loan mod application to my bank.
  9. I would continue paying down debt and looking to increase my documented income until I got the bank’s decision. Loan mods usually take a couple months to process, and lenders don’t pull a person’s financial records right away.

If the bank was already processing my loan modification application but had not yet made a decision, I’d follow these steps:

  1. Credit scores matter. So today, I would follow the steps outlined in my DIY Credit Repair blog post (link), with two changes:
    • I would pay to overnight the letters to the credit bureaus. Time is of the essence.
    • I would NOT contest the late payments by the lender foreclosing on me. I wouldn’t want to upset my lender by contesting their late payment reporting.
  2. Income matters. I would get a job with documented income–ANY job. A minimum wage job that barely covers daycare will help a loan mod much more than having no documented income. If I was being underpaid or hated the work, I’d just keep looking for something better during my off-hours. (Any time my documented income increased, I’d notify my lender ASAP.)
  3. Unpaid debt matters. I would pay down every penny of debt possible between now and the bank’s decision about my loan mod:
    1. My highest priority would be to not let anything new go to collections.
    2. My second highest priority would be to pay down revolving debt that appears on my credit reports. (Revolving debt includes credit cards and other debt where the balance can go up and down.)
    3. If I got all revolving debt paid off, I’d look at my remaining loans. If any had a low enough balance so that I could pay it all off early, I’d do that.
    4. I would not bother paying off debt that has already gone to collections. It doesn’t help credit scores at all. If I completed steps a, b, and c with money left over, I’d save it. If my loan mod was declined, having savings would be helpful.
  4. I would continue paying down debt and looking to increase my documented income until I got the bank’s decision. Loan mods usually take a couple months to process, and lenders don’t pull a person’s financial records right away.

So, to recap: you can increase the odds of getting your loan mod approved by doing four things:

  1. Improving your credit score with DIY credit repair
  2. Increasing your household’s documented income
  3. Reducing your unpaid debt
  4. Getting 888-995-HOPE involved

There are no guarantees, but the more of the above steps you can complete before your loan mod application is approved, the better your odds.

Please bookmark this page if it’s helpful, and comment if you have any questions. And please let me know how it goes! I wish you the best of luck.

Finally, please comment if you have any additional suggestions that can help other homeowners get their loan mods approved. Thank you.

David Weiss

I help people solve real estate-related problems with an emphasis on helping folks avoid foreclosure. I've been a real estate professional since 2013.

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