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In this period of economic challenges you may be tempted to modify the terms of your home loan to prevent foreclosure. However, home mortgage modification may affect your credit score as well as income tax obligations so you need to be careful in the way you go about it. Since modifying a home loan can be complicated it might be wise for you to talk with a home loan modification professional, rather than attempting to get your home loan modified entirely on your own.

You should be aware that a home loan modification will probably affect your credit score. How it will do that depends on several variables. The loan modification can affect your credit negatively or positively. It depends on what sort of home loan modification you are able to secure and how far behind your payments are at the time of such modification.

In theory a modification should not hurt your credit score as you are not borrowing any money. You will be paying less in interest and this should reduce your debt burden. In fact, most lenders look favorably at a reduction in interest. In this manner, this could improve your credit.

It could get even better if your lender decides to forgive part of the loan. However, this is not something you should count on. However, if the lender writes off any part of the loan, it will show up as a smaller loan, and that should work to improve your credit rating.

The way your lender reports your home loan modification to the credit reporting agencies affects your credit. Most lenders will consider your loan paid as less than the amount owed. That will impact your credit score negatively. If you are in foreclosure at the time of a modification that will all definitely count against you. Still as you will be saving your home as compared to a foreclosure or short sale a loan modification is better on your credit record.

Home loan modifications used to be taxable. This means that the Internal Revenue Service considered the amount of the forgiven sum to be income. That was terrible news to many homeowners. To address the problems this was causing taxpayers, the Internal Revenue Service made an announcement in 2007 prohibiting this practice. As a result of that taxable income reversal, loan modifications from January 2004 to July 2007 and those adjusting from January 2009 to July 2012 no longer carry taxes against the forgiven debt.

Again, if you are having problems paying your mortgage, it may be a good idea to contact a home loan modification professional. A professional can help you to reduce the interest on your mortgage, have the lender possibly drop late charges, and could perhaps go as far as to renegotiate the principal on your loan.

However, a word of warning. Take the time to investigate the person or company before signing any agreement for home loan modification services. So many American families are desperate for home loan services involving home loan modification that the field has been fertile ground for crooks and scam artists. Families who are in a great hurry and under tremendous financial and emotional stress are all too often easy prey for professional con men.

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