10 Loan Modification Qualifications You Need To Know About Before Calling Your Bank
If you are facing foreclosure, you may be considering modifying your loan.
What most people don't realize is that the bank uses all of the information you provide as evidence (or lack thereof) in the future when deciding to lower your payments or not.
You know how the recording says, "this call may be recorded?" They may review that call later if they have any suspicion that you are misrepresenting anything on the application.
It is very important to know all of the facts and have them organized in a neat little package before beginning the application process or even before you contact your bank.
Here are 10 Loan Modification Qualifications considered by most banks: 1.
Hardship: The bank wants to make sure they consumer who is applying for a loan modification is really going through difficult times and is not making up stories to take advantage of the situation.
If you recently lost a job, lost a loved one, lost hours at work, had your mortgage payment adjust upwards, or basically anything that legitimately caused you to fall behind in your payments, the bank will likely work with you.
2.
Debt to income ratio: If you make a lot of money and can easily afford your current payment, they will not be so excited about working with you.
If you make very little money, they will not be very interested, either because they will think that you cannot afford the new payment.
It has to be just right.
They use a formula called the debt to income ratio to determine if you make the right amount of money.
They want to see that your expenses are in the range of 35% of your income.
3.
Credit: They will look at your credit report to verify all of the debts and payments that you claim on your application.
Be honest and thing hard about any loans and/or old bills that you may owe on.
If something is wrong later, they will just ask you for an explanation.
They do not care about your FICO score.
4.
Bankruptcy: If you are filing a Chapter 7 bankruptcy, they will want to know if you have included the property or not.
If so, they are less interested in helping you because they have no recourse later on if you do not follow through with the mortgage modification.
I 5.
Age of missed payments: If you have just started to fall behind, that is ideal timing.
If you are many months behind, they may question whether or not you will be responsible enough to handle the future modified payments.
If you attempted a short sale that didn't go through or any other good reason, they will probably not factor this in.
If you are current, they will be very happy that you are pro-active but usually want you to actually fall behind before they will complete the modification.
6.
Age of the current loan: If you just bought the property within the last 9 months, it will be more difficult to qualify.
There are scams floating around where people take advantage of the system and they are trying to protect their interest.
If you can prove your hardship and you bought recently, you should be fine.
If you are beyond 9 months, that is good.
7.
Current loan terms: If you have an adjustable rate mortgage, a pick a pay loan, a negative amortization loan, or anything similar that is adjustable, the bank will work harder to help you.
They realize that rates are destined to go up and when they do and your rate doubles, your payment will be especially tough to make.
8.
Investment Property: If you are planning to modify your investment property loan, that is fine if you qualify.
They will modify investment loans, but they are a little more strict.
If it appears that you are trying to take advantage of the situation, it may be tough.
If you have a real hardship and the only other option is foreclosure, they will get real motivated to help you.
9.
Financial Improvement: Do you foresee a bigger income in the near future? Banks often ask that kind of question.
If you do, they will want to do some further investigation and determine if you can just afford the current payments with that income.
10.
Insolvency: Do you have a lot of assets and few debts? If so, it will be tougher get modified.
If you take all of your assets and subtract all of your liabilities and the number is negative, you are golden.
Just be aware that if they see that you have an asset that you could sell to solve the problem, they will not be thrilled to help you.
Luckily, retirement accounts do not apply.
Even if you have $1,000,000 in your IRA, 401K, etc.
, they cannot use that against you.
What most people don't realize is that the bank uses all of the information you provide as evidence (or lack thereof) in the future when deciding to lower your payments or not.
You know how the recording says, "this call may be recorded?" They may review that call later if they have any suspicion that you are misrepresenting anything on the application.
It is very important to know all of the facts and have them organized in a neat little package before beginning the application process or even before you contact your bank.
Here are 10 Loan Modification Qualifications considered by most banks: 1.
Hardship: The bank wants to make sure they consumer who is applying for a loan modification is really going through difficult times and is not making up stories to take advantage of the situation.
If you recently lost a job, lost a loved one, lost hours at work, had your mortgage payment adjust upwards, or basically anything that legitimately caused you to fall behind in your payments, the bank will likely work with you.
2.
Debt to income ratio: If you make a lot of money and can easily afford your current payment, they will not be so excited about working with you.
If you make very little money, they will not be very interested, either because they will think that you cannot afford the new payment.
It has to be just right.
They use a formula called the debt to income ratio to determine if you make the right amount of money.
They want to see that your expenses are in the range of 35% of your income.
3.
Credit: They will look at your credit report to verify all of the debts and payments that you claim on your application.
Be honest and thing hard about any loans and/or old bills that you may owe on.
If something is wrong later, they will just ask you for an explanation.
They do not care about your FICO score.
4.
Bankruptcy: If you are filing a Chapter 7 bankruptcy, they will want to know if you have included the property or not.
If so, they are less interested in helping you because they have no recourse later on if you do not follow through with the mortgage modification.
I 5.
Age of missed payments: If you have just started to fall behind, that is ideal timing.
If you are many months behind, they may question whether or not you will be responsible enough to handle the future modified payments.
If you attempted a short sale that didn't go through or any other good reason, they will probably not factor this in.
If you are current, they will be very happy that you are pro-active but usually want you to actually fall behind before they will complete the modification.
6.
Age of the current loan: If you just bought the property within the last 9 months, it will be more difficult to qualify.
There are scams floating around where people take advantage of the system and they are trying to protect their interest.
If you can prove your hardship and you bought recently, you should be fine.
If you are beyond 9 months, that is good.
7.
Current loan terms: If you have an adjustable rate mortgage, a pick a pay loan, a negative amortization loan, or anything similar that is adjustable, the bank will work harder to help you.
They realize that rates are destined to go up and when they do and your rate doubles, your payment will be especially tough to make.
8.
Investment Property: If you are planning to modify your investment property loan, that is fine if you qualify.
They will modify investment loans, but they are a little more strict.
If it appears that you are trying to take advantage of the situation, it may be tough.
If you have a real hardship and the only other option is foreclosure, they will get real motivated to help you.
9.
Financial Improvement: Do you foresee a bigger income in the near future? Banks often ask that kind of question.
If you do, they will want to do some further investigation and determine if you can just afford the current payments with that income.
10.
Insolvency: Do you have a lot of assets and few debts? If so, it will be tougher get modified.
If you take all of your assets and subtract all of your liabilities and the number is negative, you are golden.
Just be aware that if they see that you have an asset that you could sell to solve the problem, they will not be thrilled to help you.
Luckily, retirement accounts do not apply.
Even if you have $1,000,000 in your IRA, 401K, etc.
, they cannot use that against you.
Source...