When you apply for a loan workout with your lender you will be asked to complete a loan modification form called a financial statement or budget. This is a detailed accounting of your monthly income and expenses. Your bank looks at this to determine if you will qualify for help. How you prepare this form will be a big factor in whether you get approved or not-make sure you know a few tips that could help you qualify.
A loan modification financial statement needs to prove to your lender in black and white that you cannot afford the current loan payment because you have more money going out than you have coming in. But it must also demonstrate the ability to afford the new modified mortgage payment. How can you do that clearly?
First, you must be able to determine your target payment-this is the new loan payment that you will ask for. This is the goal-a new lower payment that you can afford and fits into the lenders guidelines. You then use this target payment as the centerpiece of your new budget-showing the bank that after you pay all of your bills, including the new lower target payment, you have a little bit of disposable income left over for expenses. The federal plan calls for a target payment that equals 31% of the household gross income. So, take the total gross income and multiply it times 31%-that equals the new modified payment. Remember, this includes monthly property taxes, homeowners insurance and any homeowner dues.
This new target payment must be able to be achieved using the federal guidelines of modification-first reduce your interest rate to as low as 2%, if the payment cannot be reached then extend the term to 40 years. If the target payment is still not able to be reached, then the bank may consider forgiving or deferring some of the loan balance. Homeowners can use a simple software program that mimics this process so that the new terms will be immediately displayed-and borrowers will be able to see if any adjustments need to be made to their financial statement in order to qualify. This is an important tool to use so that the lender is supplied with an accurate and acceptable financial statement the first time.
After the new target payment, your budget should balance-meaning that you can afford to meet your monthly obligations. This is the goal of your loan modification forms. You may have to adjust your budget to make it balance, eliminating some expenses, or trimming others so that you can make the house payments and the rest of your fixed expenses. This will demonstrate to your bank that you are not a risk of default in the future.
A telephone interview with your bank where all of this information is verified is a big part of the approval process. You should have your budget all figured out and in front of you before you call your lender. You do not want to be stumbling about and make a mistake that could throw you out of the approval guidelines. When you work on your financial statement, and fine tune your budget beforehand, you will be prepared to speak with your lender. Make any adjustments that the software program indicates to pass the triggers for approval, then submit your accurate and acceptable application-avoid costly mistakes. You should have all of your information right in front of you on your loan modification forms so you don’t make a costly mistake. Loss mitigators say this is the biggest reason for denial-homeowners who are not prepared!