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Do it Yourself Loan Modification – What You Need to Know Before You Apply

If you are one of the many of distressed homeowners considering a do it yourself loan modification, there are a few important things you need to know to improve your chances of success. Although close to 5 million borrowers desperately need loan modification help, lenders have been dragging their feet, kicking and screaming and not offering any type of far reaching loan workout programs up until recently. Now that the Federal Government has implemented the Home Affordable Modification Plan, with billions of dollars in bail out money-lenders are serious about modifying loans for borrowers facing foreclosure. If you are interested in applying for a loan modification with your current lender, read on for some important tips that may help you qualify.

Your lender really wants to know 1 thing-can you afford to pay and maintain the new lower loan payment if they agree to grant you a loan modification? Your do it yourself loan modification application must prove that to your lender. Each bank has their own guidelines in place to determine who qualifies for assistance. Most lenders want your new loan payment to represent between 31-45% of your gross (before any deductions) monthly income. This means that the new lower house payment-including taxes and insurance-will be reduced to attempt to meet that debt ratio target by a combination of a lower interest rate, longer loan term, or principal forbearance or forgiveness.  Usually a combination of some or all of these options are employed to reach the desired affordable payment.

You will be asked to provide your proof of income and assets (if any) as well as a financial statement detailing your income and expenses when applying for a do it yourself loan modification. The financial statement is basically a “picture” of your current financial situation-but that “picture” must fit within the lenders frame. That frame is the lenders guidelines regarding debt ratio and required disposable income after all expenses have been paid. Most lenders like to see that after you have paid all your bills, you have $250-$300 left over at the end of the month. This will assure the lender that you are not a risk for re-default after the modification.

It is important to take the time to complete the Financial Statements properly-even the most deserving borrower may be denied loan modification help if the paperwork is not acceptable. Your Current Financial Statement will show the lender that you are having trouble meeting all of your expenses due to the high home loan payment. The Proposed Financial Statement will show the lender that with a new lower loan payment you can pay your bills and have a little left over at the end of the month. This is where you also show your bank that you have cut any unnecessary expenses and have made home ownership your priority.

When applying for a do it yourself loan modification, lenders also want to know that you have suffered a financial hardship of some kind that has caused you to fall behind or are at risk of default. Maybe your interest rate jumped up and is no longer affordable, or you lost your job, had medical expenses, etc. When you present your application for loan modification help you should also include a Hardship Letter. This will outline the circumstances that caused the problem, what plans have been put in place to over come it, and your commitment to pay and maintain the new lower home loan payment. Keep it short-1 to 2 pages maximum-but be sure to also include any documentation to backup your story as well.

Do it yourself loan modification requires some upfront knowledge, persistence and patience. However, a homeowner who takes the time to research, learn and prepare will have a good chance at getting the help they need and deserve. No one is going to work as hard as you will to save your home-after all you have the most to lose and the most to gain. Interestingly, a recent report noted that homeowners who worked directly with their lender had a higher success rate than those who paid a third party tor represent them!  Over 250,000 troubled homeowners have already gotten the help they needed with a loan modification and you can too!