Mortgage Modification: Having to struggle to make mortgage payments is a stressful situation.
Especially if you’re concerned about possibly losing your house.
You can attempt to refinance your mortgage.
But unless you have a pretty good credit score that could get you even deeper into debt.
However, if you’re facing a serious financial hardship.
You may be able to work with your mortgage lender to get a mortgage modification.
Although similar to a refi, with a mortgage modification.
Your lender changes the terms of your existing mortgage.
Rather than extending you a new loan.
1. Compile evidence of the hardship you’re facing.
Mortgage modifications are generally available for homeowners who have experienced an unexpected hardship.
Such as the death of a spouse or a medical emergency, that has made it difficult to make mortgage payments.
To qualify for a mortgage modification, you must be able to prove this hardship to your mortgage company.
- For example, if you are having difficulty making your mortgage payments after the sudden death of your spouse, evidence of your hardship would include your spouse’s death certificate and records of income your spouse made before they died.
- If you’ve been receiving government benefits for disability or other hardship, documentation of those benefits can also help you qualify for a mortgage modification.
2. Make copies of pay stubs for the last 6 months.
Applying for a mortgage modification is similar to applying for a mortgage.
Your lender will want to know that you have income to make the mortgage payment as modified.
- If your income has recently decreased, for example.
- Because you lost your job or became disabled, include paystubs before and after the change.
- So your lender will be able to tell how much your income has decreased.
3. Pull a copy of your credit report.
Take steps to have them removed, if at all possible, before you apply for a mortgage modification.
- Your credit report can also help you determine what other debts you have.
- Since the lender will look at your debt-to-income ratio when deciding whether to grant your mortgage modification, it’s a good idea to pay down your debts, especially consumer credit cards, as much as you can before you apply for a mortgage modification.
Tip: If your credit score is over 650 and you have relatively few existing debts, you might get a better deal refinancing than you would through a mortgage modification. As long as your credit is pretty good, it’s typically easier to get approved.
4. Calculate your debt-to-income ratio.
For the purposes of mortgage modification.
Your debt-to-income ratio is the amount of your total monthly mortgage payment compared to your monthly income before taxes.
The maximum debt-to-income ratio most mortgage lenders will consider is in the 36 percent to 45 percent range.
- For example, if your total monthly mortgage payment is $2,000 and your gross monthly income is $4,000, this means your debt-to-income ratio is 50 percent – higher than most mortgage lenders will approve. A modification could lower your monthly payment by either lowering the interest or extending the term of the loan. Either modification could bring your debt-to-income ratio into an acceptable range and make your mortgage payments easier to make.
5. Print up bank statements and tax returns.
Your bank statements and tax returns provide your lender with information about your cash flow, income, and assets.
Your lender can also see what your basic expenses are each month and how much you normally spend on home-related bills, such as utilities and water.
- If your income has decreased significantly since you took out the mortgage, tax returns can be used to show this decline that has led to your inability to cover your mortgage payments.
6. Get documentation regarding your mortgage and the value of your home.
Before you apply for a mortgage modification.
Figure out how much you owe on your home and how much your home is worth.
Lenders are typically less likely to work with homeowners who are “underwater”.
Who owe more than the house is worth.
However, if you have built up equity in your home.
Your lender will likely be more willing to work with you.
- Mortgage modifications typically are only available if the home is your primary residence.
- Mortgage lenders have less sympathy when it comes to working with owners of investment properties because they could simply sell the property.
- If you haven’t had your house appraised in a while, your lender may want to get an appraisal before agreeing to a mortgage modification.
7. Create a basic outline for your letter.
Your hardship letter should be brief and direct, providing as many factual details as possible.
You want your lender to have all the relevant information about your case so they can make a favorable decision.
An outline will help you keep your thoughts organized.
- Provide the reason you fell behind on your payments, or are having difficulty making your payments.
- If you have documents that can back up this explanation, make a list of what documents you’ll need.
- Consider whether your situation is temporary or permanent. If it’s temporary, think about how long you think it will take you to get back on your feet again, and whether this is a short-term or longer-term situation.
- Think about what you want the outcome to be. Write down your ideal modification, as well as a couple of other alternatives that might also help you out.
8. Write your hardship letter in formal business letter format.
Include your account or loan number on the subject line of your letter.
Unless you’ve spoken to a specific agent at your mortgage company.
Who indicated you should address the letter to them, address your letter “to whom it may concern.”
Double space, then type the rest of your letter single-spaced, with a double-space between paragraphs.
- Use a formal closing for the end of your letter, such as “sincerely yours.” Leave a double-space for your signature, then type your full legal name. If you have a co-borrower, such as your spouse, provide a space for them to sign the letter as well.
9. Include specific details about your financial situation.
Close the body of your letter by telling your lender the type of modification you want, and how you think it will enable you to fulfill your obligation to the lender.
- Be honest in your letter – especially about information that your lender could easily verify. If your lender catches you lying in your hardship letter, they won’t extend you a modification.
- Avoid mentioning irrelevant problems that make you sound unstable. If you seem as though you’re still headed down a financial spiral, your lender will be less likely to work with you because they can’t be certain the terms of a modification would stick.
Tip: Make copies of any documents you have that back up statements you made in your letter and enclose them along with the letter.
10. Edit and proofread your letter carefully.
Your hardship letter should be clean, readable, and free of typographical and grammatical errors.
If you’re not confident in your writing or editing ability.
You might want to have a friend look over your letter before you send it to your lender.
- Reading your letter out loud can help you spot errors, as well as identify places where it’s hard to read.
- Edit for length as well as clarity. Ultimately, you don’t want your letter to be more than a page long. If your lender wants additional information about your situation, they will ask you for it.
11. Print and sign your letter.
- Make a copy of your signed letter before you mail it.
- Then mail it to your lender using certified mail with return receipt requested. When you get the receipt indicating that your lender has received your letter, file it with your copy of the signed letter.
- Talk to your mortgage lender before you send your letter. They’ll be more likely to consider it carefully if they’re expecting it.
12. Keep thorough records of all communications with your lender.
Write a letter confirming the agreement and send it to your lender.
- Use certified mail for all communications so that you have proof when the documents letters have been received by your lender.
- Keeping written record of all communications ensures your lender won’t claim they “lost your paperwork” or try to argue that you never applied for a modification or never sent supporting documentation.
Tip: Write down the names of anyone you speak to who works for your lender. Try to talk to the same person each time, if possible, rather than talking to a number of different people. This will keep the agent you work with more accountable.
13. Contact your mortgage lender to discuss your options.
Once you have all of your documentation together.
Call or write your mortgage lender to discuss the types of mortgage modification that may be available to you.
Be honest that you want to fulfill your obligation under the mortgage contract.
But are having difficulty making your payments.
- If you’re a few months behind on your payments.
- Your lender may come to you with an offer to modify your mortgage terms or refinance your mortgage.
- Generally, your lender can either defer some of the principal, lower your interest rate, or extend the term of your mortgage. Deferring principal may be the best option if your financial hardship is a short-term, temporary issue you believe will be resolved within 2 or 3 months.
14. Discuss the impact to your credit score.
While modifying your mortgage so that your payments are easier to make may improve your payment history.
It may have a negative impact on your credit score in other ways.
The lender may put a note on your credit report to indicate that you requested a mortgage modification.
Which can make it difficult to get other loans.
- If you anticipate that your financial hardship shouldn’t last any longer than a few months and you aren’t yet late on your mortgage payments.
- You should be able to negotiate with your lender to avoid having any negative marks placed on your credit report.
15. Complete your mortgage lender’s modification application.
Each lender has its own application process.
For most, you’ll have to fill out an application similar to the application you filled out for your initial mortgage.
You’ll need to provide information about your income, employment, expenses.
And any other debts you may have.
- Your lender will have a list of documents that must be submitted along with your application.
- Typically, your formal hardship letter, as well as any supporting documentation for that letter, will be included in your total application package.
16. Find out if your mortgage modification has been granted.
When you submit your application and supporting documentation.
Your lender will let you know approximately how long it will take them to review your application.
You will get a letter in the mail notifying you whether your application has been granted.
- If your application was granted, the letter typically will include details about the new terms of your mortgage. You may have to go to your lender’s office in person to sign modification documents.
17. File an appeal if your application is denied.
If your modification is denied, your lender should let you know the reasons your application was denied.
You may be able to appeal the denial.
However, you typically have a short period of time – sometimes as little as 14 days – to notify your lender that you want to appeal the decision.
- Your notice may include information about how to appeal the decision. If it doesn’t, simply call your lender and let them know that you want to appeal the denial of your mortgage modification application. Follow up with a written request that you mail using certified mail with return receipt requested.
- Get in touch with a HUD-approved housing counselor, who can help you challenge the decision or evaluate other options – free of charge.
18. More tips
This article discusses how to qualify for a mortgage modification in the country.
If you live in a different country, you may be subject to different rules.
Talk to your lender or a financial advisor for more information.