Homeowners now have a way out of their financial difficulties using the new home loan modification plan. In the past, when homeowners were finding it difficult to pay their mortgages, there were very few options. The first choice was foreclosure. There are bound to be many questions about this new plan. This article contains many of the answers to the most frequently asked questions.

How Did this Program Come Into Being?

The loan modification program, part of the Making Home Affordable plan, came into effect on February 10, 2009. As of March 4th, 2009, homeowners who meet the criteria can change the terms of their loan so they can keep their homes.

Who Qualifies?

People who live in the home for which they owe the mortgage qualify for a loan modification. The loan must have been signed before the beginning of 2009 and be for no more than $729,750. Gross monthly income will be verified before a loan modification can be obtained.

How Does it Work?

First the percentage of your gross monthly income that is used to pay your mortgage is calculated. Under this plan, homeowners who qualify can have their payments modified so it is no higher than 38% of their total income. Then the government will match the lender's reduction so the loan payment is lowered to 31%. Once a new monthly payment is agreed upon, it is effective for five years.

What Happens in a Loan Modification?

First, your monthly payment will be looked at as a percentage of your total gross monthly income. Under the Making Home Affordable plan, qualified homeowners can get their loan terms modified by the lender so that their monthly payment does not exceed 38% of their gross monthly income. After that, the government will match the lender dollar for dollar to lower the loan to 31% of monthly income. Those new monthly payment remains fixed for the next five years.

Who is Paying for All This?

The Homeowner Stability Initiative has been formed to make these modifications possible. This initiative will spend $75 billion of taxpayers' money to offer loan modifications. It is thought that this plan will help 3-4 million homeowners.

What Limitations are In Effect?

This plan is not available to investors and house flippers. A credit check will be done on all applicants to make sure they are actually living in the house before a modification will be granted. Only Fannie Mae or Freddie Mac insured loans are eligible. If another company insures the loan, such as is in the case in subprime loans, modification is not an option.

How Do I Apply?

If you are interested in a loan modification, contact a financial counselor that is approved by the US Department of Housing and Urban Development. These not-for-profit groups will provide you with free financial advice and help you figure out your next move.

This article is meant to provide some basic information about the government's Making Home Affordable plan and will help homeowners deal with their monthly mortgage payments.