Mortgage loan modifications can potentially save a property from foreclosure and lower your monthly payments. Generally, modifications are reserved for primary residences, but some private lenders might be willing to modify a loan on a rental property. The federal government's Home Affordable Modification Program (HAMP) was modified in June 2012 to include rental properties to the list of eligible properties.
Loan modifications work to restructure the terms of the existing mortgage loan to bring the monthly payments down to a more manageable level for the borrower. This is accomplished by lowering the interest rate or extending the repayment term. To get a modification, you must apply for one. The process will include submitting financial documents, such as tax returns or pay stubs, and writing a letter of hardship explaining why your financial situation has changed.
Modification Through Your Lender
The decision to modify the loan is completely up to the lender. Ultimately, it's the lender's money and the lender will analyze the benefits and risks of granting the modification. Proceeding with a foreclosure is often costly to the lender, so it might be in his best interest to modify the loan and continue to receive monthly payments, albeit reduced. When rental properties are concerned, explain the situation in a clear and concise manner in the letter of hardship. Provide proof of your rental expenses and a reason they are greater than the generated income, such as the tenants not paying rent.
Government Sponsored Modification
HAMP is a federally sponsored program providing home loan modifications to those who qualify. As of June 1, 2012, the program amended the eligibility requirements to include rental properties. Previously, the only way a rental property would be considered for HAMP was if it was a duplex or multiunit property in which you -- the owner -- occupied a unit. These changes will make it possible for more struggling homeowners to keep their properties.
The program has other basic requirements that applicants must meet to qualify. First, the mortgage loan must have originated before Jan. 1, 2009. Second, there is a total principal balance amount that can be modified. For single-family homes the limit is $729,750, and for multiunit properties the limit is $1,403,400. For rental properties that are not owner occupied, you must already be delinquent on payments to be considered for HAMP. You must also provide proof that you earn enough income to make the new proposed payments and have not been convicted of a felony within the past 10 years.