A loan modification refers to the process by which your bank grants you a permanent or temporary adjustment to the conditions and terms of your mortgage. These adjustments are aimed at making your payments more affordable in accordance with the regulations of your financial situation, and they can involve longer loan term periods, the reduction of the principal, or the granting of a lower interest rate. These measures can prove instrumental in avoiding foreclosure on your home. In order to apply for this process, you must find out if you qualify for a loan modification.
You need to determine if you meet the required qualifications relevant to a modification. Lenders have their own qualification guidelines. Whilst similar, these guidelines can vary from lender to lender.
The following are guidelines that banks use in evaluating the eligibility of your loan for modification:
Front-end debt-to-income ratio
The front-end debt-to-income ratio is utilized by lenders in determining the amount of your gross income (not net income) that is directed toward your house payment on a monthly basis. They combine the costs of housing expenses, interest, taxes, and other relevant and important factors in determining your debt ratio. The lender calculates the front-end debt-to-income ratio before the modification process is started, along with what it would be after the application has been processed. Before the modification, this ratio needs to be above 31% in order for you to be eligible. As a result of the modification, the ratio needs to be lowered as follows:
-
For private loan modification programs, an acceptable debt-to-income ratio is typically between 31% and 42%.
-
For HAMP loan modifications, the guideline is to lower the debt-to-income ratio between 31% to 38%.
It is important for homeowners to understand that this is an important criteria for approval.
Modification agreement
This agreement provides homeowners with a lower monthly mortgage payment which helps reduce their debt-to-income ratio to an acceptable level, as outlined above. Before you are granted a permanent modification, you will be given a three-month trial loan modification (a.k.a trial payment period, or TPP). During this period, it is critical that you make your payment on time or you won’t be offered a permanent loan modification. You may need to fine-tune your budget and eliminate unnecessary expenses in order to afford your new mortgage payment.
Although you should be well aware of your debts and expenses, you should not need to become a financial analyst in order to understand how all these ratios work together. It’s advisable to seek some expert help in trying to make sense of your budget before and after the modification process.
Do your research
In order to qualify for a loan modification you need to educate yourself about the process. Initially, the process can be intimidating to homeowners, but with some careful research you will discover it to be less daunting than you might expect. Educate yourself regarding the lending requirements of your bank while thoroughly completing all the necessary forms. This will increase your chances of approval.
Seeking outside help while working directly with your lenders
You may choose to work with your bank directly. However, informing yourself about the process may help you avoid unnecessary difficulties along the way. Additionally, if you want to obtain some assistance, secure help that is inexpensive and conflict-free.
Presenting professionally prepared paperwork
Your application package and the associated paperwork must be acceptable to the bank. Ensure that you have filled out all the required forms. Don’t forget to include a letter that describes your financial difficulties in detail. Use language that is grammatically correct in order to convey a respectful and professional attitude.
Conclusion
Take the necessary time to be properly prepared before you begin the loan modification process. After all, this is your precious home that you are trying to save. You will discover that once you become familiar with the ins and outs of this process, you will be able to determine whether or not this program is suited to you.
For more information on loan modification programs, please visit http://www.mycaal.com
