Qualifying for a loan modification involves meeting certain requirements for your monthly income, monthly expenses and bank balances. All of this information is used by the lender to determine if you meet the basic guidelines for approval on your loan workout. There is a standard formula that is used by over 90% of mortgage lenders that can help you find out if your own financial situation will fit into the program requirements. This is critical to know if you hope to have the best chance of success and get that lower mortgage payment you need.
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Loan Modification FAQ's - Monthly Income, Monthly Expenses and Bank Balances
How much money do I need to make in order to qualify for a loan mod? This really depends on your current mortgage balance and current housing expenses. Your income needs to be sufficient enough to hit a new target payment that will equal 31% of your gross monthly income. This target payment equals your house payment - including principal and interest - your monthly property taxes, homeowners insurance and HOA dues if applicable. If you earn too little, then your loan will not be able to be modified to hit that new target payment. A loan modification software program will show you automatically how much income you would need to qualify. What if I am unemployed or on disability right now? If you do not have a steady, verifiable source of income you will not qualify for a loan modification. You may be offered a forbearance instead, which is a temporary relief from making payments. Those missed payments will be added to the back of your loan and will still be due later on. Can I count my spouse's income even though not on the loan? Yes, you can count all contributing members of your household. Basically the lender wants to know how much income is coming into the house each month and how much is going out - this gives them a good picture of your financial situation. What about room mate income? This is allowed, however you must be able to prove it with canceled checks or a lease/rental agreement. Most lenders will only allow 75% of the rent to be counted towards your income for qualifying. My monthly expenses vary quite a bit, how should I list them? The best way is to average your utility bills, your grocery bills, etc so that the overall cost is fairly accurate. Items that you pay annually should be divided by 12 to get the monthly amount. Should I include my health insurance even though it is deducted from my paycheck? No, any items that are already deducted from your pay should not be listed again. I have some money in my savings account, will that disqualify me for a loan modification? The principal reason for a loan workout is a financial hardship situation and an inability to pay your current mortgage payment. If you still have a large amount of liquid reserves that you can use, your lender may turn you down for what is called DCR - debt coverage ratio. You can use a loan modification software program to help you with this calculation to make sure you are passing the guidelines.
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