Loan Modifications

• A loan modification is designed to help borrowers pay back a loan when monthly payments are becoming difficult to repay in their original form. Lenders do not want to spend time and money foreclosing on a property, so a loan modification represents a more practical way to recover at least most of their profit while keeping the loan. Loan modifications begin with a trial period that may become permanent after several months, and involve several different steps on behalf of the lender.
  
  

Closing Cost Coverage

• While borrowers may be disappointed to learn they have to pay closing costs for a modification when they are not actually making a new loan, in many cases the bank has a good reason for charging for these costs. Usually, modification closing costs will be much lower than conventional costs. The lender will have to process new loan terms, which creates a fee, and will usually order a new appraisal on the home, incurring another cost.
  
  

Closing Costs Rolling

• There are loan modifications, refinances and similar processes that lenders sometimes advertise and having no closing costs at all. Borrowers must be very careful when considering these programs. Usually, they mean that the lender simply rolls the closing costs into the overall loan payment. This means that not only will the borrower need to eventually pay the costs but will also need to pay interest on them even if the cost is not immediate.
  
  

No-Cost Modifications

• In some cases, loan modifications may actually have no closing costs. This can occur with a combination of the right lender and a government program, such as an FHA modification designed to help homeowners in trouble. If the borrower can prove sufficient financial hardship lenders may waive closing costs according to guidelines, but it is difficult to guarantee a no-closing cost modification in any general sense.