- Best for
- A lasting drop in income, when you cannot afford the old payment even without the arrears.
- You keep the home
- Yes, if you complete the trial payments and the final agreement.
- Watch for
- Trial payments. Missing one, or not accepting the offer in time, can end the review.
What a modification changes
A modification is a new, permanent agreement on the same loan. The missed payments are usually added to the balance. The servicer then lowers the payment by extending the term (often to 40 years), lowering the interest rate, or setting part of the balance aside with no interest until the end of the loan.
You do not need to pay anyone to get one. The application is free, and a HUD-approved housing counselor will help you with it at no charge.
What each loan program offers
- Fannie Mae Flex Modification: for a conventional loan that is at least 60 days behind or in imminent default, at least 12 months old, and not already modified three or more times. The servicer adds the arrears to the balance, then works through a rate reduction, a term extension up to 480 months and setting principal aside, aiming for a 20 percent cut in the principal and interest payment. There are no fees.
- Freddie Mac: modification is one of the options Freddie Mac lists for staying in your home. Ask your servicer for the terms.
- FHA: 30-year or 40-year modifications, alone or combined with a partial claim, at no more than HUD's market rate. Only one permanent retention option is allowed in any 24-month period, except after a disaster.
- VA: a traditional modification, a 30-year modification and a 40-year modification are all on VA's list.
- USDA guaranteed loans: a fixed rate no higher than market, arrears added to the balance, and a term of up to 40 years. There is also a streamline modification for borrowers at least 90 days behind that requires no review of your finances and must cut principal and interest by at least 10 percent.
See help by loan type to find out which of these applies to you.
The trial payment plan
Most modifications start with a trial: you make the new, lower payment on time for three months (sometimes four) before the change becomes permanent. Fannie Mae uses a three-month trial, or four if you are current or less than 31 days behind. FHA requires a three-month trial before any permanent option, four months if you are not yet in default.
Treat trial payments as the most important bills you have. For FHA loans, rules that became mandatory in September 2026 count a third failure to accept a trial plan as a failed trial.
If you are denied
- The denial must give the specific reason for each modification option you were turned down for.
- You can appeal a modification denial if your complete application was received 90 days or more before a foreclosure sale, or before foreclosure started. You have 14 days from the decision notice.
- Someone other than the person who made the first decision must review the appeal, and the servicer has 30 days to answer.
- If the servicer is not following these rules, you can file a complaint with the CFPB and with your state regulator, listed on your state's page.
Apply early: the 37-day line
If your complete application reaches the servicer more than 37 days before a foreclosure sale, federal rules require it to review you for every available option within 30 days, and bar it from asking for a foreclosure judgment or holding the sale while that review is pending. After that line the federal protection is gone. See your federal rights.
How much time do you have? It depends on your state.
See the foreclosure timeline, deadlines and free local help for the state where the home is.
Common questions
Does a loan modification cost anything?
No. Fannie Mae's Flex Modification and USDA's streamline modification both state that no fees are charged to the borrower, and applying through your servicer is free. A company that asks for a fee up front to get you a modification is breaking federal law. See foreclosure rescue scams.
Can I be modified more than once?
Sometimes. Fannie Mae does not allow a Flex Modification on a loan that has already been modified three or more times. FHA allows one permanent retention option every 24 months.
Will I owe tax if part of my balance is forgiven?
Possibly. The tax break for forgiven mortgage debt on a main home expired for 2026 unless a written arrangement was in place before January 1, 2026. See taxes after foreclosure or forgiven debt.
Other options to compare
- Repayment planYou keep paying your normal mortgage payment and add an extra amount each month until the missed payments are paid back.
- ForbearanceYour servicer agrees to accept reduced payments, or none, for a limited time. The missed amount is still owed and has to be dealt with when the pause ends.
- Payment deferral or partial claimThe missed payments are set aside as a balance with no interest and no monthly payment. It comes due when you sell, refinance or pay off the mortgage.
- ReinstatementYou pay all the missed payments, late fees and foreclosure costs in one payment. The loan goes back to normal and the foreclosure ends.
- Short saleYou sell the home for less than the mortgage balance and the lender agrees to take the sale price. It avoids a foreclosure sale when keeping the home is not possible.
- Deed in lieu of foreclosureYou sign the home over to the lender and the lender cancels the foreclosure. It is usually considered after a short sale has not worked or is not practical.
Sources
- Fannie Mae Servicing Guide D2-3.2-06, Flex Modification
- Fannie Mae Servicing Guide F-1-27, processing a Flex Modification
- Freddie Mac: Options to stay in your home
- HUD Handbook 4000.1, Update 18 (August 2026), FHA loss mitigation
- HUD Mortgagee Letter 2026-08, updates to loss mitigation requirements
- VA: Help to avoid foreclosure
- 7 C.F.R. § 3555.303, USDA guaranteed loan servicing options (eCFR)
- 7 C.F.R. § 3555.304, USDA streamline modification (eCFR)
- 12 C.F.R. § 1024.41, loss mitigation procedures (eCFR)