Financial difficulties can hit homeowners anytime, making it challenging to keep up with their loan payments. Whether it’s job loss, illness, or divorce — if you’re having trouble paying your mortgage, a loan modification could be your best solution.
If you qualify and can handle the new terms that come with mortgage modification, you can avoid foreclosure on your home. Ideally, mortgage loan modification allows you to keep your home and get on more solid financial footing.
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A loan modification refers to permanently changing the terms of your existing mortgage loan rather than replacing it with a new one like you would if you refinanced it. If your mortgage payments are higher than you can afford, you can apply with your lender for a mortgage modification that will lower your payments to an amount you can handle. In some cases, a loan modification will require a trial period of several months before it becomes permanent.
Your lender will review your situation to determine what type of loan modification terms are most likely to help you manage your mortgage payments. Some options include:
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Lowering the mortgage principal and interest rate portions of your monthly payments.
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Extending the repayment term to reduce your monthly payment, sometimes to a 40-year loan.
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Adding past-due amounts to the principal balance and recalculating your monthly payment to bring your loan current.
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Forgiving some of the balance to lower your monthly payment.
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Changing the loan term from an interest-only payment or adjustable-rate mortgage to a fixed-rate mortgage to stabilize your payments.
Learn more: Adjustable-rate vs. fixed-rate mortgages
Loan modification requirements vary by loan program and lender, but generally, you need to meet two conditions. First, you must be able to demonstrate a reason for your hardship, such as loss of income or unexpected expenses due to a death in the household, a natural disaster, a job loss, a divorce, or some other circumstance that impacts your ability to make your existing mortgage payments.
Second, you must show that you can afford to make modified mortgage payments. Similar to applying for a new loan, your mortgage lender will want to review your financial statements, income, assets, and credit.
Read more: 6 options for handling your mortgage when getting a divorce
If you find yourself in trouble financially and cannot pay your next mortgage payment or have fallen behind on your payments, the first step is to call your lender. Depending on your circumstances, your lender should discuss several options with you, including possibly a loan modification.
You can also contact a HUD-approved housing counselor in your area who can help you understand your options, given your personal financial situation.
If loan modification is an option, you’ll need documentation to apply, including:
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Evidence of the cause of your hardship such as a death certificate or information about a natural disaster that changed your financial situation.
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Financial paperwork that shows your reduced pay or higher expenses.
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Recent statements from your bank and investment accounts.
Loan modification options vary by loan program and lender, so it’s best to start by contacting your mortgage servicer if you have financial issues. Generally, loan modifications are available through the following loan programs:
Conventional loans owned by Fannie Mae and Freddie Mac
The Flex Modification program is available for primary residences and second or investment homes with loans owned or partially owned by Fannie Mae or Freddie Mac. The Flex Modification payment must be lower than the current payment, preferably by 20%, and borrowers must prove their hardship and stable, verifiable income.
The homeowner should have had the loan for at least 12 months. Borrowers must be delinquent for at least 60 days, or if at least one borrower lives in the home, the loan must be in imminent default even if the payments are current.
Until April 30, 2025, borrowers with an FHA loan who are 61 days or more delinquent have multiple options under a COVID-19 recovery program. Borrowers who can achieve a 25% reduction to their monthly principal and interest payments may qualify.
Other programs are available to FHA loan borrowers to lower payments and finance delinquency amounts. In 2025, the FHA is anticipated to return to its previous loan modification program, which includes three options. First, you can lower your payments and add past-due amounts to the balance while extending the loan term. Second, you can choose a partial claim that adds a zero-interest lien on the property to cover past-due amounts. Third, you can opt for a combination of the two programs.
VA borrowers struggling to make payments can request a loan modification, which can include extending their loan term, reducing the interest rate, or including past due loan amounts in their loan with a new repayment schedule.
Borrowers with a USDA loan who are in imminent danger of defaulting may be eligible for a loan term extension of up to 40 years or a lower interest rate.
Read more: How a 40-year mortgage loan works
While a loan modification can be a way to save your house from foreclosure, this solution to financial difficulties has some advantages and disadvantages.
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You can continue to own your home since loan modifications are permanent changes.
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You may be able to refinance in the future to more favorable terms.
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Lower payments could help you recover financially from a crisis.
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You may pay less interest if the rate is lowered without extending your loan term.
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Loan modification typically doesn’t require closing costs, whereas refinancing does.
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Your credit score could decrease depending on how your loan modification is reported (though not as severely as if you faced foreclosure).
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Missed and late payments from before modifying your loan will remain on your credit report.
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If your loan term is extended, paying off your loan in full will take longer, and you will likely pay more interest over time.
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If the payments are not low enough to help you get back on your feet, or your finances don’t improve, you can still lose your home in foreclosure.
Dig deeper: What to expect when facing foreclosure
If you’re struggling to pay your mortgage, there are other options available besides loan modification, including:
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Forbearance. Mortgage forbearance is a temporary solution for struggling homeowners. Your lender may allow you to pause or lower your monthly payments for a specific time. However, you will eventually need to make the payments that have been paused, which could result in a large lump sum due at one time.
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Refinance. If you have good or excellent credit and enough equity in your home, you may qualify to refinance your mortgage into a new loan with lower payments. However, refinancing may not always lower your payments, especially if mortgage rates are higher now than when you took out your current loan. You will also need sufficient income to qualify for the new payments. In addition, a refinance requires you to pay closing costs.
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Short sale. Consider a short sale if you owe more on your home than its current value. Your lender will have to agree to pay off your mortgage with the proceeds from the sale of your home, even if the amount doesn’t cover the full amount. In some states, your lender could sue you for the difference if they have not signed a waiver absolving you of the debt.
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Deed-in-lieu of foreclosure. If you cannot afford modified payments on your mortgage, you may want to ask your lender to accept a deed-in-lieu of foreclosure, also sometimes called “cash-for-keys.” In this case, you would give up your home but avoid the foreclosure process, saving you time and money.
Learn more: How a short sale in real estate works
If you cannot provide evidence of a financial hardship causing you to struggle to afford your monthly mortgage payments, you may not qualify for a mortgage modification. Additionally, you might not be eligible if you can’t provide verification that you have sufficient income to make modified payments.
A loan modification can lower your credit score — but typically, when you apply for a mortgage modification, you have already missed one or more loan payments. Those missed, partial, or late payments will likely have already damaged your credit. A loan modification is likely to be less damaging than a foreclosure on your credit score.
You are not required to hire a lawyer for a mortgage loan modification, but you may want to consider doing so if you’re uncertain about the terms of the modification. Alternatively, you can contact a HUD-approved housing counselor for professional advice.
This article was edited by Laura Grace Tarpley.
