Credit glossary
Loan modification
A permanent change to a loan's terms, such as the rate, length or balance, agreed with the lender to make payments affordable.
A modification keeps you in the home, unlike a short sale or deed in lieu. It isn't on Fannie Mae's list of significant derogatory credit events that trigger mortgage waiting periods, though the late payments that came before it still show on your report. HUD's housing counselor materials cover it among the options for avoiding foreclosure.
How the modified loan is reported depends on the servicer, so ask in writing how the account will appear and check your reports once the change takes effect. If the modification fails and the home is later sold short or foreclosed, those events carry their own waiting periods. A HUD-approved housing counselor can walk you through the options before you sign.
Guides that go deeper
- Short sale, deed in lieu or loan modification: the credit trade-offsHow a loan modification, short sale and deed in lieu each show up on your credit report, what you might still owe, and how long each delays your next mortgage.
- Hardship plans, forbearance and how they show up on your creditThe CARES Act rule that kept forbearance off credit reports expired in 2023. How hardship plans and forbearance get reported now, and what to ask first.
Sources
- B3-5.3-07, Significant Derogatory Credit Events: Waiting Periods and Re-establishing Credit, Fannie Mae Selling Guide
- Housing Counselor Study Guide, Module 5.3: Avoiding Foreclosure and Disposition Options, U.S. Department of Housing and Urban Development
This is education, not legal or financial advice. Spot an error? Tell us and we'll fix it.