Lots of people are looking to modify their home loan in one of several ways, but not a lot of people know exactly what they have to do to start the process. Remember, there are actually several different ways a home loan can be modified. And while the government is encouraging banks and homeowners to work together, there’s been a lot of confusion on the part of many home loan customers about exactly what they have to do to get a mortgage modified and monthly housing payments reduced.

First, it’s important to understand that banks would rather have you living in your home and paying them something than not have you in the home at all. Banks don’t want to own a bunch of empty houses they may or may not be able to sell. They would rather get regular monthly payments from you, even if those payments are reduced from what they once were, rather than foreclose on your home and evict you.

That being said, some banks and some lending institutions are obviously better about modifying mortgages than others. Bank of America, one of the largest mortgage lenders after buying Countrywide, has a reputation of being reluctant to modify home loans. Larger banks will actually have entire departments devoted to home loan modification, while some smaller community banks may only have a few customer service reps who specialize in modifying mortgages. Yet smaller banks are often more willing and able to help individuals reduce their mortgage payments so they can stay in their homes.

While banks do have a lot of pressure to modify home loans right now, they are also under a lot of unusual internal and external stress. Many bank call centers are not designed to handle the influx of people trying to modify loans nor are they staffed to handle the enormous complexities and changing paperwork and rule system that is being created with home loan modifications, trial loan modifications and the entire economic stimulus push. Some banks have complained that the complex is too rigorous on them and that they simply haven’t had a chance to build a better and more customer-friendly home loan modification process.

Here, then, are some tips for what you can do to increase your chances of getting a bank to work with you to modify your home loan.

Call The Right Department: When you first try to contact your bank about modifying your home loan, you want to make sure you are speaking to the correct people. You can ask for a “Loan Modification”, “Homeownership Retention” or a “Loss Mitigation” department. Some banks have entirely different loan departments based entirely on the type of the home loan you have. Loss mitigation is the department in many banks that handles loan situations where defaulting on the loan is very likely. That should give you some indication of how serious you have to be modifying your home loan.

Verify Your Financial Information: Once you are in touch with the right department, you’ll want to try to obtain a copy of your mortgage agreement and statement of income. You’ll want to make sure yearly income, your other billing commitments and your financial information are all accurate at the time you signed. There have been lots of cases of disreputable mortgage loan officers who have actually falsified financial documents without the original signer even knowing. If this happened to you then you may have legal recourse or at least have a much better chance of having your loan modified.

Be Behind On Mortgage Payments: Unfortunately, most banks won’t take your request to reduce your mortgage payments unless you are behind on home loan. Ideally, your monthly mortgage payment should be 31% or less than your monthly net income. Generally banks won’t show much interest in working with you unless your monthly mortgage payment is 41% or more than your monthly take home income. If you aren’t behind on your mortgage then many banks will reason that the payment is obviously not high enough to be a burden on you. And that’s where you have to convince them otherwise.

Show Hardship or Reduction in Income: Banks are often more willing to work with customers who have had an unforeseen negative change in their income through no fault of their own. Essentially, you have to show a financial need to have your mortgage payments modified. If you’ve lost a job, been down-sized, or forced to work less hours at reduced pay then you may be able to get a bank to modify your home loan, especially if you had a clean payment history up to the point of the income change. Deaths of a primary earner in a family, divorces or excessive medical expenses can also be considered by banks when they are re-evaluating your ability to pay a mortgage.

Act Professional: Don’t scream and cry on the phone to a bank because it won’t do you much good and may actually harm your case. The home loan modification process can be stressful and frustrating. You’ll want to do your best to lay out the facts as you know them and to try to make the bank understand that it’s ultimately to their advantage to work with you. The customer service rep at the other end of the phone line may be just like you: a normal man or woman who’s trying to hold down a job and provide income for his or her own family. Most bank employees are ultimately just doing their job and they’re bound by company rules about what they can and can’t do.

Work With Others: There are lots of other people who are also trying to modify their home loans and some of them may have tips, contact information or leads to bankers and individuals in the mortgage industry who may be able to help you. There are a number of affordable Do-It-Yourself Home Loan Modification Guides and books which can help explain some of the complex rules and regulations as well as give you hints on how to get around some unreasonable restrictions. You may want to look into these before spending hundreds (or even thousands) of dollars in a professional service that claims it can help you modify your home loan on your behalf.

DIY Home Loan Modification Guide

Persistence Pays Off: Remember that banks are large bureaucracies that are sometimes difficult to deal with, but if you keep working with them then they may eventually be able to modify your loan. If one loan officer or department doesn’t seem to be attuned to your needs don’t rule out trying to speak with someone else in the same company who may be better suited to helping you. It can take anywhere between a few months to over a year to get your home loan modified, depending upon the bank and your financial situation. Through your process you’ll want to stay organized and grounded and take notes of everyone you speak with at the bank or lending institution you’re dealing with. Sometimes working to modify your home loan can feel like a part-time job, but if you’re successful then the payout will be worthwhile.

When you begin the process of trying to modify your home loan you need to have realistic expectations and realize that not every home loan can be adjusted. If your mortgage interest rate is 6.5% or less then you probably aren’t going to get a bank modify your loan. By far the most common way to have a home loan adjusted is to have an adjustable rate switched to a fixed rate or at have the interest rate lowered. Yes, principal reductions are still done, but they are generally rare and you shouldn’t expect that as an inevitable outcome.

Remember that when you modify a mortgage or loan to reduce payments, then both you and the bank ultimately wins: the bank continues to make profits off your monthly mortgage payments and you get to live in your home at a more affordable payment.