Does a loan modification affect my credit score?

Yes, a loan modification can hurt your credit score unless your lender reports your mortgage “paid as agreed.” “Loan modification can affect your credit score, but it depends on how the servicer — the company that collects your mortgage payments — reports it to the credit bureaus,” says Matt Hackett, senior vice president and head of operations for Equity Now, a mortgage lender headquartered in Mamaroneck, New York. “It is worth asking your servicer this question when you are pursuing a loan modification.”

Can you refinance after doing a loan modification?

Yes, you can refinance after a loan modification because modifying your mortgage simply revises the terms of your mortgage contract. “You can refinance after a loan modification, and the guidelines vary across the different loan types,” says Hackett. “In some instances, a lender may look for 12 months of on-time payments after a modification before you can refinance. This varies, however, and is also based on whether you were paying on time before the modification.”

What are loan modification scams?

Mortgage loan modification scams are designed to take your money with the false promise of preventing foreclosure. “Scam artists offer to act as an intermediary between the homeowner and the lender,” says Bellas. “Some of the tactics they use include asking you to sign your title over to them, or telling you to stop making payments to your current lender.” A scammer might also request money upfront or encourage you to sign paperwork that is intentionally confusing. If you are asked to do any of these things, consider it a red flag and do not proceed.

Mortgage loan modification: What it is and how to get one

Written by

Erik J. Martin,

Edited by

Laurie Richards,

Reviewed by

Jeffrey Beal,

Expert verified

Published on February 17, 2025 | 5 min read

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Key takeaways

A loan modification is a long-term mortgage relief option for borrowers experiencing financial hardship, such as loss of income due to illness.
A modification typically changes the loan’s rate, term or both to make monthly payments more affordable.
If you’re seeking to modify your mortgage, you must provide proof of hardship to your mortgage lender or servicer.

What is a loan modification?

A mortgage loan modification is a relief option designed for borrowers experiencing long-term financial hardship that permanently changes an existing mortgage. If approved by your lender, this option can lower your interest rate, change the structure of your overall loan or both. The goal of a mortgage modification is to reduce your monthly payments to an affordable level, helping you stay up to date on the loan and in your home.

Lenders allow loan modification agreements because the alternative — default and foreclosure — are more costly to their business. In other words, they don’t want the house, but they do want the loan repaid. A modification helps accomplish both goals.

How to qualify for a mortgage modification

To qualify for a loan modification, you’ll typically need to meet these three requirements, at minimum:

Provide proof of significant financial hardship, such as long-term illness or disability, the death of an income-providing family member, a sudden hike in housing costs like property taxes, divorce or natural disaster
Be at least one month behind on your loan or about to miss a payment
Live in the home as your primary residence

Types of mortgage modifications

There are several avenues to make your mortgage more affordable, and your options could differ based on the type of loan you have (more on that below). In general, your lender or servicer might implement one or more of these modification options:

Cut the interest rate: With a lower rate, you’ll have lower monthly mortgage payments and save on interest in the long run.
Extend the repayment period: Lengthening the loan term lowers your monthly mortgage payments.
Reduce the principal: In some cases, the lender might forgive some of the loan balance to lower your monthly payments. Keep in mind: The IRS treats forgiven debt as income, so you’ll need to report it on your tax return.
Convert to a fixed-rate mortgage from an adjustable rate: The interest rate on an adjustable-rate mortgage moves up and down. If it goes up, your monthly payments might no longer fit into your budget. Swapping to a fixed-rate mortgage gives you more financial stability.

Loan modification programs

There are different mortgage loan modification programs for different types of loans, including:

Conventional loan modification: If you have a conventional mortgage backed by Fannie Mae or Freddie Mac, you might be eligible for the Flex Modification program, which can reduce your monthly payments by up to 20 percent, extend the loan term up to 40 years and potentially lower the interest rate.
FHA loan modification: There are a few options for an FHA loan modification, including an interest-free loan for up to 30 percent of your balance or a 40-year loan extension.
VA loan modification: If you have a VA loan, you might be able to roll the missed payments back into the loan balance and work with your lender to come up with a new, more manageable repayment schedule. You can also request a 40-year extension to your loan term.
USDA loan modification: With a USDA loan, you can modify your mortgage with an extended term of up to 40 years, reduce the interest rate and receive a “mortgage recovery advance,” a one-time payment to bring the loan current.

How to apply for a loan modification

1. Review your circumstances

Before contacting your servicer, consider whether the hardship requires a long- or short-term solution. If you foresee being able to repay your current mortgage in the future, your servicer might offer you forbearance or another relief option instead.

2. Organize documentation proving financial hardship

In addition to providing your servicer with bank and other financial statements to show reduced income, put together a letter explaining the circumstances of the hardship.

3. Contact your servicer

Contact your servicer’s loss mitigation department and ask for a loan modification. Keep a careful record of the representatives you interact with and get everything in writing. If you’re denied the modification, you might be able to ask for a second review if you applied at least three months before your home’s foreclosure sale.

4. Know what to avoid

If you’re approved for the modification, compare the total payments under your original loan to the total payments under the mortgage modification. What you don’t want is a temporary reduction and the reduced amount added back onto your mortgage balance.

In addition, avoid any modifications that are interest-only and adjust to a higher rate or add unnecessary costs to your loan in the form of penalties, fees or processing charges, says Rick Sharga, president and CEO of CJ Patrick Company, a real estate consulting firm in Trabuco Canyon, California.

5. Keep track of your new payments

Make sure you understand the new monthly payment, when it’s due and any long-term implications for your finances.

Is a loan modification right for me?

If you've experienced a permanent loss of income and are falling behind on your mortgage, a loan modification might be right for you. — Andrew Dehan, Writer, Bankrate

A mortgage loan modification is a solution for borrowers facing long-term financial hardship. If you’re struggling to make your mortgage payments and don’t foresee changes to your income, work with your lender or servicer to see if a loan modification is the best strategy for you.

Keep in mind that you might pay more interest on your mortgage with a loan modification, but this isn’t a given. “If the modification means extending the term of the loan — which is often the case — you will pay more interest,” says Seth Bellas, a producing branch manager for Churchill Mortgage in Michigan. “A common modification is taking the amortization of the loan from 30 years to 40 years, which would mean you are paying the principal at a slower rate, and thus paying more interest.”

However, if the loan modification helps you stay in your home, you might not mind that trade-off.

Alternatives to mortgage modification

Forbearance: Mortgage forbearance is a short-term solution in which the lender agrees to suspend or reduce your monthly mortgage payments for up to one year. Keep in mind that interest will continue to accrue during the forbearance period. Once the forbearance ends, you’ll be put on a repayment plan.
Refinance: You might consider refinancing if interest rates have fallen since you got your loan, you have strong enough credit and income to qualify for a new mortgage and you can afford the closing costs. Refinancing can help you lower your monthly payment permanently either by reducing the loan’s rate or extending its repayment term. (Note, though, if you’re at the point of considering a modification, you likely don’t have the income to qualify for a refinance.)
Short sale: Short sales involve selling your home when the balance of your mortgage is more than the home’s value (an underwater mortgage). Your lender will need to approve this type of sale, and it can have tax implications.
Deed in lieu of foreclosure: This is a last-resort option where you give up the deed to your home in exchange for the lender releasing you from the loan payments. This allows you to avoid the severe credit damage of having a foreclosure on your record, but still means you lose the home.

Learn more: What is the difference between a refinance and a modification?

Mortgage modification FAQ

Yes, a loan modification can hurt your credit score unless your lender reports your mortgage “paid as agreed.” “Loan modification can affect your credit score, but it depends on how the servicer — the company that collects your mortgage payments — reports it to the credit bureaus,” says Matt Hackett, senior vice president and head of operations for Equity Now, a mortgage lender headquartered in Mamaroneck, New York. “It is worth asking your servicer this question when you are pursuing a loan modification.”
Yes, you can refinance after a loan modification because modifying your mortgage simply revises the terms of your mortgage contract. “You can refinance after a loan modification, and the guidelines vary across the different loan types,” says Hackett. “In some instances, a lender may look for 12 months of on-time payments after a modification before you can refinance. This varies, however, and is also based on whether you were paying on time before the modification.”
Mortgage loan modification scams are designed to take your money with the false promise of preventing foreclosure. “Scam artists offer to act as an intermediary between the homeowner and the lender,” says Bellas. “Some of the tactics they use include asking you to sign your title over to them, or telling you to stop making payments to your current lender.” A scammer might also request money upfront or encourage you to sign paperwork that is intentionally confusing. If you are asked to do any of these things, consider it a red flag and do not proceed.