When people find themselves drowning in unpaid bills and facing a salary reduction or job loss, their options can sometimes seem extremely limited. Some may consider filing for bankruptcy when they can no longer make their monthly mortgage payments, in the hope of avoiding foreclosure and eviction from their home. While this can be a solution when all else has failed, it is important to consider other options that may involve negotiating the terms of the mortgage with the lender.

An option before foreclosure

Known as a mortgage loan modification, if you can qualify for this arrangement it can turn out to be an optimal solution for both sides. Foreclosure is costly for the lender, and many will avoid it if possible. Mortgage loan modification differs from a refinance in that the terms of the existing mortgage are changed but not replaced, as would occur for a refinance.

Although the terms are up to the lender, some possible modifications may include lowering the monthly interest rate, lowering the monthly principal payment and extending the term of the loan, or changing from an adjustable-rate mortgage to a fixed-rate loan. In some cases, loan forbearance would, if granted, temporarily reduce mortgage payments.

Taking the first steps to modification

For those struggling to make monthly payments, a good first step is to contact the lender to discuss options. Many lenders and servicers have temporary or permanent loan modification programs. There are also government assistance programs like the Flex Modification program, if your mortgage is backed by Fannie Mae and Freddy Mac, as well as alternative programs to the expired Home Affordable Refinance Program. You can also seek out a HUD-approved housing counselor.

Although a mortgage loan modification can negatively impact your credit score, it is likely far preferable to a foreclosure. Whether the modification is temporary or permanent, once there is an established record of consecutive payments or if the payee can return to the original terms of the loan, that credit can be rebuilt over time. For those in the Tampa Bay area, getting the right information to discover the available options will help those in need navigate through financial difficulties without losing your home.