It’s tough out there.
Unemployment is still at the highest rate it has been in decades and more and more homeowners are struggling to make their mortgage payments.
In light of financial difficulties, many lenders are offering modifications to existing loans, designed to make mortgage payments more affordable, assisting homeowners in avoiding the fundamental “F word”, foreclosure.
Still, even with all of the positives, loan modifications get denied.
The hardship packet
It’s like closing documents, but worse. The hardship packet is the information required by the lender to determine whether you have the resources to continue paying a mortgage while meeting other financial obligations. The number one item that undoes a possible approval, you ask. The answer is the budget letter included in the hardship packet.
What the bank wants
The bank wants to ensure that you have the money to make your mortgage payment, buy food, and pay for electricity. The bank doesn’t care if you don’t pay your Visa or MasterCard account.
They are concerned with one thing and one thing only: that they get their money at the end of the month. Homeowners that fill out a budget letter and inflate numbers like food bills, electricity bills while adding items like credit cards and other debts are shooting themselves in the foot.
The “worse” a financial picture looks; the more irresponsible a customer appears to a lender. This results in a no-questions-asked loan modification denial.
Filling out a budget letter, the right way
Complete several budget letters. The goal is to have a final draft to send to the lender showing that you can make a mortgage obligation and pay other essential bills and maintaining a surplus. Ideally, you should have around $400 to $600 left over every month after your bills are paid.
If you have more than that “magic number” left over, that can hurt you too; since the bank is now wondering what exactly you are spending your excess on without being able to manage your mortgage payment.
On the flip side, having less than the “magic number” means that you are scraping by, and that makes a bank decidedly nervous. Keep on track with the “magic number”, but do it legally.
What I mean by this is provide accurate depictions of food and housing costs, but ignore the credit cards if they force you over or under the number.
Mortgage first. Everything else second.
Loan modifications are granted to homeowners that put a mortgage first, prioritizing that commitment above all other bills. Ignore the calls from American Express and organize your housing situation first. Everything else can wait and should wait until you have your housing situation settled.
If it’s still “No”
The fact is that mortgage modifications are not for everyone. Some homeowners endure catastrophic long-term financial turmoil that forces them out of their homes.
In these cases, the homeowner should focus on a short sale agreement with the lender to sell the house, as opposed to accepting foreclosure. If this describes your situation, it’s time to make that call to your lender and move forward with that option.