Do You Qualify for Loan Modification?
By Kristy Hernandez
Getting approved for a home loan modification often takes many months, and lenders are not good at clueing homeowners in on whether they are actually likley to get approved. I often have clients tell me that they have been declined for loan modification several times and they are still not certain why. This blog entry will give some quick tips to help the average homeowner determine understand their odds of loan modification success.
1. Determine if 35% of your GROSS monthly income is less than your current home loan payment. Gross monthly income is the amount of money you make before taxes are taken out. Standard underwriting guidelines dictate that the average person can afford a mortgage payment that is equal to (or less than) 35% of their current monthly income. For example, if your gross monthly income is $10,000, then you can afford a monthly payment of $3,500 or less. If your current mortgage is already less than $3,500 per month, you can afford the mortgage you have, and the lender is not likely going to approve you for modification. However, if your current payment is more than $3,500, there is a greater chance that loan modification will be approved.
2. Know the cost of your property taxes and homeowner’s insurance. Every major lender currently requires a loan modification to include principal, interest, property taxes and insurance (commonly referred to as PITI) in the new modified monthly loan payment. If your current loan does not already include these items, unless you receive a principal reduction or inteserst rate reduction, your new loan payment could end up being more after modification than before.
3. Be prepared to provide lots of information on your financials. Every lender will require you to continuously submit updated pay stubs, bank statements and taxes throughout the loan modification process. If you are self employed, you will also be required to provide monthly profit and loss statements. Failure to proivde this information to the lender in a timely manner greatly reduces your chance of receiving a loan modification approval.
4. Be able to explain your hardship. You must have some sort of measurable hardship in order to qualify for a loan modification. If your personal and financial circumstances are exactly the same as when you originally received the loan, then you are unlikely to qualify for loan modification because you have not experienced a hardship that would warrant giving you a discount on the balance owed.
If you are unsure about your loan modification odds of success, contact our office for a free consultation.