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Should I Modify a Loan Because of a Temporary Hardship?

A temporary financial hardship is usually considered to last for approximately a month or two.  This measure of the word “temporary” may seem short, but one must remember that in the financial world, one or two months of falling behind on certain payments is enough for lenders to repossess and / or foreclose on property for failure of the borrower to pay their debts.  With that being said, many homeowners facing a temporary financial hardship wonder if a loan modification would be beneficial to them or if they would be better off by not modifying a loan and waiting out their hardship.  The main purpose of a loan modification is to lower a person’s minimum monthly mortgage payment while allowing the person to remain in their home.  A home mortgage loan modification is intended to be a foreclosure avoidance tool for borrowers.  A person should only attempt a home mortgage loan modification when a financial hardship exists.

The problem with labeling a financial hardship as “temporary” is that nobody has a crystal ball that can predict the exact date that the temporary hardship will end.  What starts out as a temporary hardship may very easily transform to a major financial hardship within a few month’s time. 

In most cases, a lender will not even consider a loan for modification until a borrower has failed to make payments for about two or three months.  Once a borrower has missed two or three monthly mortgage payments, they have to ask themselves how “temporary” their hardship really is.      

Borrowers who are facing or fear that they will face a “temporary” financial hardship should contact their lenders to determine how many payments have to be missed before they can apply for a loan modification.  The borrower should make every effort to make all of their payments on time, but in the event that the hardship is so great that it causes a majority of the payments to be missed, the borrower should wait no longer than the required number of missed payment months before filing for a loan modification.  For example, if a lender requires a loan to be in default for three months before a modification will be considered, and a borrower loses their job and can’t find employment for three months or more, the borrower shouldn’t waste any more time wishing for their temporary hardship to be over, they should take advantage of the foreclosure avoidance programs offered to them by their lenders and the government to assist individuals in their financial shoes. 

The important thing to remember is to wait no longer than is necessary before applying for a loan modification.  In the event that a person’s financial situation improves, they will be able to put money away for future rainy days or pay off other debts…in the event the financial situation remains poor and fails to improve, then at least the borrower has the satisfaction of knowing that their once high monthly payment has been reduced.  Basically, it is better for a person to have modified a loan only to have their situation improve than it is for a person not to modify a loan only to see their situation worsen.