As economists predict another recession coming, borrowers may find themselves in a financial situation of difficulty making monthly mortgage payments. When this happens, you may have to ask your lender to make changes to the terms of your existing loan to make payments more manageable. These changes are referred to as loan modifications. They may include options involving a reduction of the current interest rate, extending the length of time for repayment, converting a variable interest rate to a fixed-rate, and some other arrangement. A loan modification for borrowers such as yourself can help correct the problem without significantly damaging your credit. To begin the process of a loan modification, you will need to provide the lender with the required documentation.
The following documentation is often required for a loan modification application.
AN INCOME AND EXPENSES FINANCIAL WORKSHEET
The reason you are applying for a loan modification is due to your difficulty in having enough funds to meet the payment schedule. One of the requirements for getting your loan modified is that you must prove you are under financial hardship by providing a financial worksheet of your current income and expenses. This documentation details your monthly earnings from any sources of income, along with your current expenditures, which reflects your fixed, variable, and periodic expenses.
TAX RETURNS (USUALLY THREE YEARS WORTH)
From a financial point of view, tax returns present a great way of viewing your income history over time from previous years to your current income. This document gives lenders an insight into when your financial difficulty began.
PAY STUBS OR A PROFIT AND LOSS STATEMENT
Paystubs are a means to check your net pay, which reflects the total amount you take home once all deductions, such as, taxes and other contributions have been taken out. Aside from verifying your income, pay stubs can also show lenders that you are employed. If you are self-employed, you must prepare statements showing your business profit and losses to evaluate whether or not you qualify for a loan modification.
Losing a job and having zero income is never a good sign that you can keep up with your payment, even if you get your loan modified. The lender must be ensured that you will be able to maintain your new mortgage payments once the loan modification is finalized. When you apply for a loan modification, you should be prepared to provide evidence that you have other sources of income, including but not limited to social security, child support, disability, and alimony.
RECENT BANK STATEMENTS
It is essential to add your recent bank statements in your loan modification paperwork, as the statements summarize the activities regarding your bank account. Your lender will go over relevant information in your bank statements, such as deposits, expenses, withdrawals, and beginning and ending balances. With those numbers, lenders can easily determine your free cash flow to decide whether to approve your loan modification.
HARDSHIP LETTER OR AFFIDAVIT
If you want your lender to assess your loan to consider modifying it, you must be able to provide them with explanations of the hardship you are facing and why you are not able to make your mortgage payments. Most common hardship letters or affidavits may include reasons such as a reduction in income due to loss of a job or being laid off, death of a primary breadwinner, illness or medical emergency of homeowner or family member, unexpected natural disaster requiring significant repairs, forced job relocation, imprisonment, or increased expenses.
Keep in mind that your documents will be viewed altogether and considered thoroughly with other related factors. Your credit score, debt-to-income ratio, and current loan terms are also considered to help your lender decide whether to approve you for loan modification or not.
If you’re struggling to make your house payments and you’re facing foreclosure, Debt Rescue Law can help you in applying for a loan modification. Call (833) 707-1234 for a free consultation.