What is a mortgage modification and how to get one

Updated June 30, 2025

by Erik J. Martin

Man in his home relieved after learning how to get a mortgage modification



Having trouble affording your monthly mortgage payments due to a hardship? The good news is that you may qualify for a mortgage modification. This is a loan modification granted by your lender that permanently restructures your mortgage for the purpose of lowering your payments.

Loan modifications for mortgages come in several different options. This article can help you learn more about how mortgage modification agreements work, who qualifies, different mortgage loan modification programs, how to apply, the benefits and disadvantages based on loan modification types, and more.

What is a mortgage modification?

Mortgage modification is when your lender agrees to change the terms of your existing home loan to make it more manageable and affordable. This loan modification can include decreasing your interest rate, extending your loan term, or rolling missed payments into your loan balance.

“This is not a refinance, and you are not swapping out your loan. You are permanently restructuring it,” says Jacob Naig, a real estate agent and investor. “It’s typically employed when homeowners fail to qualify for refinancing because of hardship or bad credit.”

Loan modification is often a lifeline for borrowers in financial crisis: a last resort for homeowners seeking to avoid foreclosure.

Who qualifies for a mortgage loan modification?

To be eligible, you must demonstrate to your lender a legitimate financial hardship that prevents you from making your payments. This can include a job loss, illness, divorce, or natural disaster.

“In general, you must be able to prove that your hardship is either continuing or expected to last for the long term and that you will be able to make modified payments in the future,” notes Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College. “Your lender will demand documentation such as pay stubs, bank statements, hardship letters, and tax returns to validate your eligibility for mortgage modification.”

Additionally, your home typically must be your primary residence, “and you cannot be in active bankruptcy unless permitted by the court,” explains Zev Freidus, president of ZFC Real Estate.

Proactive homeowners – meaning those who contact their lender to request loan modification before missing any payments – tend to have a better chance of getting approved for one.

“Your lender will need evidence that you have a source of income that will allow you to make modified payments after the loan modification takes place, which is why proper documentation is crucial,” points out Naig.

Mortgage loan modification types

There are several different mortgage loan modification programs available that you may qualify for. Here’s a quick breakdown of each.

Conventional or flex modification

This type is typically available for loans owned by Freddie Mac or Fannie Mae. It can reduce monthly payments by changing the interest rate or extending the loan term up to 40 years – sometimes both.

“A standard or flex modification is helpful if you are behind on payments or close to default. But it only applies to certain loan types and properties, usually primary residences,” says Joy Aumann, a Realtor with Compass. “If you have modified your loan before, however, you might not qualify again for this type.”

On the plus side, this modification can cut your payments by up to 20%, with no refinance needed. On the downside, you’ll pay more in interest over the long term, your credit score could be impacted, and any missed payments could be tacked onto your loan balance.

FHA loan modification

If you have an FHA mortgage loan, this could be a valuable option to consider if you’re facing serious financial difficulty. In many cases, your lender may offer a loan modification that adjusts your interest rate, extends your loan term, or defers a portion of your past-due balance. Often, this includes a “partial claim,” where the Department of Housing and Urban Development (HUD) advances funds to cover missed payments and places an interest-free subordinate lien (a second mortgage) on your property, payable when you refinance, sell, or pay off your primary mortgage. Borrowers typically start with a special forbearance agreement if the hardship is temporary; if the difficulty continues, they may qualify for a permanent loan modification.

“This can really help lower monthly costs, especially if your situation has changed suddenly. Then again, you could end up paying more in interest over the long term, and it might cause a dip in your credit score,” cautions Aumann.

Also, consider that a second lien adds extra complexity and may not lower your payment as much as hoped.

VA loan modification

If you are a veteran, active duty military member, or eligible surviving spouse, a VA loan modification can come in handy. It typically works by adding any missed payments, fees, and other allowable costs to your loan balance and re-amortizing the loan, often extending the term up to 360 months (30 years) from the date of the modification to make monthly payments more affordable.

“There are no fees or prepayment penalties, and qualified borrowers get strong service or support. However, your total cost over the life of the loan could increase, and it’s not as flexible as some other programs,” Naig continues.

USDA loan modification

If you live in a rural area and have a USDA home loan, the USDA may agree to extend your loan term, reduce your interest rate, or provide a mortgage recovery advance. The latter is an interest-free, deferred-payment loan secured by a silent second lien on your property. This recovery advance will handle past-due amounts such as missed payments, escrow shortages, and other eligible expenses, which are repaid only when you refinance, sell, or pay off your home.

“This is particularly helpful to low-income borrowers and is intended to result in more affordable payments,” adds Shirshikov. “But it’s restricted to USDA loans only, lender requirements can vary, and the documents involved are time-consuming.”

How to apply for and get a mortgage modification

There are several steps involved in loan modification. Let’s take a closer look at each one.

Contact your loan servicer. Ask for their mortgage help, loss mitigation, or hardship assistance department, and then request an application for a loan modification.

Write a hardship letter. Explain in writing your financial difficulties, providing a clear timeline of your hardship, and why you are worthy of mortgage modification.

Gather the necessary documents. These can include bank statements, tax returns, pay stubs, a budget worksheet, and your hardship letter.

Complete the mortgage modification application. Submit your gathered documents as requested.

Complete a trial period. If approved, you will typically make modified payments for three months to demonstrate that you can afford the new payments.

Finalize the agreement. “After a successful trial period, you’ll sign new documents and the modification will become permanent,” says Freidus.

Begin your new repayment plan. “Your loan will then be up and running under new terms. Be sure to stay on top of your payments and save all communications and records,” advises Shirshikov.

Pros and cons of getting a mortgage modification

As with any important financial decision, loan modification comes with upsides and downsides. Here’s what you need to know about each.

Pros

Lowers your monthly payments and improves cash flow. “The main benefit is making your mortgage affordable again. If you've fallen behind or are on the verge of default, it can give you some breathing room,” Aumann says.

Prevents you from losing your home. “I’ve witnessed families who were able to dodge foreclosure and bankruptcy altogether thanks to a simple reduction of $400 a month, which allowed them room to catch up on other bills,” says Naig. “Consider it a reset button for both your mind and wallet.”

Less damaging to your credit than foreclosure.

Keeps you at your home, saving you the expense and effort of moving.

No refinancing is required. “Modification can serve as a pressure release valve for borrowers who are underwater or experiencing a temporary loss of income to regain their footing without resetting the entire loan structure,” Shirshikov says.

Cons

Loan modification can extend your loan term. That means you’ll pay more in total interest over the life of your loan.

Your monthly payments may not drop that much. “You might not get the payment reduction you are hoping for,” warns Freidus.

Not everyone qualifies. Lots of documentation is required, and not every lender is willing to provide a modification. “Many borrowers get ensnared in paperwork purgatory and are ultimately denied for missing forms or failing to follow up on certain information,” Naig says. “I’ve seen homeowners throw in the towel halfway through because they didn’t know what to expect regarding the timeline or process.”

It can still impact your credit negatively. “Your credit score could drop because of delinquency or forbearance before the modification,” adds Shirshikov.

Alternatives to mortgage modifications

Loan modification isn’t your only choice. Instead, you may want to ponder these alternative strategies.

Refinancing

This swaps out your current mortgage with a new one, often with a lower rate and better terms.

“It can be a smart move if you still have decent credit and enough equity accrued. But you will probably face closing costs of 2% to 5% of your loan amount, and not everyone qualifies, especially if their income has dropped,” says Aumann.

With Better Mortgage, getting pre-approved for a refinance, including a cash-out refi takes just a few minutes with no hard credit check, choosing your loan can be done in as little as one hour, and locking in your rate takes only about a minute – a small investment of time to possibly get a lower mortgage rate and/or a shorter loan term. Initial document collection and processing is typically completed in 5-7 days, followed by conditional approval and final review within 10-15 days. Once you’re clear to close, scheduling your closing takes about 3-5 days, and the closing itself lasts just 1-2 hours. Altogether, Better Mortgage’s fully digital, streamlined approach significantly reduces refinance timelines, with many loans closing in as fast as 21 days – much quicker than the traditional 30-45 day process.

Deed-in-lieu of foreclosure

With this option, you relinquish ownership to your lender to avoid foreclosure. It’s less damaging to your credit than foreclosure, but it still results in losing your home. Plus, it may prevent you from purchasing a home in the future.

Short sale

With a short sale, you sell your home for less than what you owe on the loan. The lender has to agree to it, and it’s often used when foreclosure is looming. While it can release you from your debt, it has negative credit and tax implications.

Loan modification or forbearance

A loan modification changes your mortgage agreement, such as lengthening the repayment period or lowering the interest rate, to make your monthly payments more affordable. Forbearance temporarily reduces or pauses your payments, but the missed amounts must be paid back later, either as a lump sum, through a repayment schedule, or by extending the loan term. Both options can offer important relief during financial hardship, but they come with specific conditions and possible long-term effects, so it’s important to carefully review the details before deciding which is right for you.

Bankruptcy

Chapter 13 bankruptcy can help you avoid foreclosure by enabling you to catch up on missed mortgage payments via a 3- to 5-year repayment plan. Over this time, you must also keep up with your regular monthly mortgage payments to remain current on your mortgage.

“This can halt foreclosure proceedings and provide homeowners in serious financial trouble with legal protection,” says Shirshikov.

Conclusions

A mortgage loan modification provides a helpful way for struggling homeowners to avoid foreclosure by permanently changing the terms of their existing loan – often by extending the repayment time, lowering the interest rate, or adding missed payments to the balance – making the goal of monthly payments more affordable. To qualify, you typically need proof of financial hardship, sufficient earnings for modified payments, and documentation such as tax returns and bank statements. Keep in mind, however, that while a modification can lower payments and keep you in your home without refinancing, it could extend your loan term, impact your credit, or not reduce your payments as much as hoped.

Mortgage modification won’t solve all your problems. But it does provide a valuable lifeline when you are most in need.

“Just be sure to document everything, follow up with your lender, and ask questions about anything you don’t understand. Remember that the squeaky wheel gets the grease – especially with lender service departments that manage thousands of cases,” Naig advises.

...in as little as 3 minutes – no credit impact

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