How to qualify for a loan modification

Posted on November 22, 2008. Filed under: Loan Modification, Mortgage Audit | Tags: , |

Which homeowners qualify for LOAN MODIFICATION and how can you improve your chances of success?  While each lender has their own unique guidelines for acceptance, there are some general requirements that borrowers must meet if they hope to get their loan modified to a new, lower monthly payment.  Knowing this information ahead of time will help borrowers submit their application properly and increase their chances of getting the help they need and deserve. Further more a forensic loan audit will help uncover Truth in Lending Act and RESPA violations by the lender, which can provide leverage when negotiating a loan modification.

In reality the bank wants to know if the borrower can afford to pay and sustain the new lower loan payment if a loan modification is granted.  Unfortunately, a large percentage of homeowners who have already received loan modification assistance have re-defaulted.  This may be due to the fact that desperate homeowners accepted terms that were not actually beneficial, or perhaps were victims of the declining economy.  The long term goal of these loan modification programs is to provide an affordable and sustainable payment that will keep the borrower in the home and avert foreclosure.

Before applying for help from your lender, make sure that you have a clear understanding of what their requirements are and obtain a forensic mortgage document audit. It is pretty hard to qualify for something if you do not even know what the qualifications are.  This is important because the lender will ask for financial statements that detail income and expenses, so these must be completed properly.  Many lenders like to see a small amount of disposable income left over at the end of the month after the new modified payment has been calculated, as assurance there will not be a re-default.  Usually $200-$300 will suffice.

Another important factor in qualifying for loan modification programs is called debt ratio.  Debt ratio is calculated using the total monthly housing expenses divided by the gross monthly income.  Most lenders are targeting the new modified loan payment to be somewhere between 34%-45% of the gross monthly income.  Homeowners are advised to sit down and really determine what an affordable home loan payment would be and find out if that is attainable through a combination of interest rate reduction, longer loan term or even principal forbearance.  Then plan the family budget accordingly so that with the new payment you will meet the lenders guidelines.

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