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Top 4 Tips When Modifying Your Loan

Updated on October 1, 2010

After 4 consistent years of modifying loans for many home owners and for ourselves we've certainly learned a great deal. While there are no guarantee that your mortgage lender is going to agree your loan mod application, we've established a number of tactics that do give you results consistently no matter what bank you're dealing with.

 1. The Hardship Letter: Your mortgage lender must see plainly you're having a hardship. Provide them with a 1 page explanation of the hardship along with the reason why it will help if your current monthly payment and/mortgage balance was lowered. A hardship needs to be a situation that's short term such as a loss of employment, 1 time expense, or perhaps an interest rate increase.

 2. Debt to Income Ratio: Show your lender that a new lower mortgage payment on your mortgage would result in a 31% or less of your gross earnings. If your income is $5,000 per month, then your new loan payment you would request is $1,550 ($5,000 x 31%). Next, calculate just how much 90% of the gross earnings is ($4,500 in the previously mentioned example) and take away the amount you figured out for the 31%. In the previous example this would result in $2,950. This will be how much you've got still left to cover other monthly expenses, which leaves you with 10% left over. The 31% is your mortgage loan debt to income ratio and the 90% is your total debt to income ratio. Even though this is not the hard and fast guideline for all banking institutions, most use something very similar, and that means you must ask them so you can be sure you fit into those requirements.

 3. Value vs. Mortgage: You need to show the mortgage company that they should give you a mortgage loan modification as opposed to foreclosing on your property. By demonstrating to the lender that your true value is less or equal to your existing mortgage with them it provides them a reason to modify your mortgage. Utilizing an online service like Zillow you are able to look up equivalent houses in your area to confirm the value of your own home. Print these comparables as backup and send all of them in with your initial loan mod application. The lender is certain to get their own appraisal however you need to have a clear idea of your true value, particularly when attempting to discuss a principal reduction.

 4. Determination and Followup: Making weekly calls and repeating yourself will end up part of your routine when attempting to obtain a loan modification. It is not unordinary to give exactly the same information to different people at the exact same lender several times before they receive it. For this reason it is advisable to not only be persistent but prepared. While you are in the process of modifying your mortgage it's going to switch hands repeatedly at the financial institution and each department may possibly ask for new documents. Provide that information in a timely manner and track every phone call, fax, and conversation you have with the lender. You will need this should the bank not get something you have sent or accuse you of not supplying what they asked for and turning down the application.

Above all do not give up!

For FREE hardship letters that you need to get your a loan modification approved the first time click here: Loan Modification



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