- Request a Home Affordable Modification
The government has clarified documentation rules for the program so that borrowers now must submit a simple, standard package of documents to begin the evaluation process for a trial modification. Further, servicers are required to abide by certain response time-frames so that borrower decisions on eligibility are made in a timelier manner.
Worried and struggling homeowners trying to get help with a loan modification that will lower their monthly mortgage payment need to learn who qualifies and how to apply so they will be able to stay in their home. Confused and frustrated about how to get the help you need? You’re not alone, but before you contact your lender about a loan modification, take the time to read these 8 Important Tips:
1. Don’t talk to the collections department about your loan modification request. They may be calling you to ask for money, but you won’t get anywhere until you contact the Loss Mitigation Department.
2. Complete the modification forms as required to begin process. Get the forms and information here. Then you can review the forms and take your time to complete it properly. Inquire about their general guidelines for qualifying. For example, most lenders require that you have an acceptable debt ratio-generally it must be somewhere between 38%-45%-you will need this information when you begin completing the application.
3. Write a convincing hardship letter to document your circumstances to the lender. A brief description of the circumstances surrounding your hardship, what steps your have taken to correct it and your intention to make home ownership a priority are elements of a compelling hardship letter. Get help with a hardship letter outline and letter template to assist you.
4. Work out a new family budget that eliminates all unnecessary expenses. Then determine a realistic and affordable "target" mortgage payment that you will be able to pay now and in the future. Use that target payment when you are negotiating for your loan modification.
5. Next, you must verify that your target payment meets the debt ratio guidelines needed by the lender. Learn how to calculate your own debt ratio so you can determine your target payment that meets your lender’s guidelines.
6. Carefully complete the required financial statements listing all of your income and expenses. Be certain not to leave anything out as your lender will verify this information with your credit report and bank statements. Any omissions could result in a denial of loan modification help.
7. Now the tricky part-be sure that the financial statements clearly demonstrate that while you cannot afford the current payment and it is a hardship, you will be able to afford and pay the new lower modified mortgage payment. Make this simple to do by providing a Current financial statement and a Proposed financial statement, making sure you meet the disposable income requirements too.
8. Put it all together into a professional and acceptable loan modification application by following an easy submission checklist to make sure you have included everything the lender will need to see.
A Beginner’s Guide to Mortgage Modification
As foreclosures continue to reach all-time highs, many companies have started offering assistance programs to struggling homeowners. One that you’re probably familiar with is mortgage modification—a change in the terms of your loan that makes it more affordable. If you can no longer afford the monthly payments on your mortgage, a mortgage modification may be your best bet.
Qualifying for a mortgage modification
Every lender has its own mortgage modification standards, but the first thing you need is a valid reason. In your hardship letter—one of the primary requirements—you should explain in detail why you fell behind and justify your reasons for getting a loan modification. Maybe you lost your job, or you couldn’t afford the adjustments, or there was a death in the family. Other acceptable reasons for mortgage modification include military service, divorce or separation, and medical emergencies.
Types of mortgage modification
There are several ways a loan can be modified, and it all depends on what makes financial sense both to you and your lender. The most common mortgage modification plans involve a reduction of interest, since most defaults occur when sub-prime adjustable-rate mortgages revert to normal rates. Some lenders may also change your plan to a 30-year fixed-rate mortgage, which is a lot more stable.
Making Home Affordable Program
On March 4, 2009 President Obama announced the Making Home Affordable Plan, aimed to help homeowners in financial distress. The Making Home Affordable Program was designed to help homeowners like you who are experiencing a financial hardship avoid foreclosure by modifying your original mortgage into a more affordable one. The purpose of this program is to reduce your mortgage payment to 31% of your gross income (including escrow fees), using a rate floor of 2%. If your mortgage payment is already at 31% or less of your gross income, you do not qualify for the MHA Program. This doesn’t necessarily mean there aren’t any other options for you. Your loss mitigation Attorney will be able to review your case and tell you what other options you have. One of the main requirements for the Making Home Affordable Program is that you have a verifiable financial hardship such as job loss, reduced income, illness, separation, or death. Also, if you have an option ARM loan that will soon recast making your mortgage payment higher & unaffordable you may qualify.
Other requirements are:
Principal Balance must be no greater than $729,750. Higher limits are allowed for properties with 2 – 4 units.
· 2 units = $934,200
· 3 units = $1,129,250
· 4 units = $1,403,400
- The subject property must be owner-occupied. This means that investments properties are not eligible for this program.
- Loan must have been originated on or before January 1, 2009.
Unless you have a Fannie Mae or Freddie Mac loan it is up to the lender to decide if they will participate in this program. The government offered incentives for lenders who participate. They will earn $1,000 per granted modification – that is after the 3 month trial when the new permanent loan modification terms take effect as well as $1,000 yearly for 3 years as long the borrower stays current.
Some of the documents your lender will require to review your case under the MHA Program are:
· Financial Sheet – A list of your monthly expenses & income.
· Making Home Affordable Hardship Affidavit – Here you explain your hardship to the lender.
· Recent Proof of Income – Copies of your pay-stubs, letter from employer stating how much you make, 1099 form, or Profit & Loss Statement.
· Bank Statements – 2 most recent bank statements
· Tax Returns – Last two years of tax returns
· 4506 – T – This is a form that is required. By you signing this form you authorize your lender to get a copy of your tax returns for the years specified on the form.
If your property taxes & insurance are not escrowed, you will also need to provide your lender with:
· Property Tax Bill
· Insurance Declarations Page