Frequently Asked Questions (FAQ)

Here we will answer any questions you have concerning Loan Modification, Short Sale, Foreclosure, Forbearance, Deed-in-lieu of Foreclosure, or any other real estate related question you may have.

If you have a question that you don't see addressed here please Contact Us and we will answer your question directly and may include it in our list.

  • Do I qualify for a Loan Modification?

    Briefly:

    • Do you have a source of income?
    • Do you have a documented hardship; reduction in income, medical bills, etc?
    • Will simply reducing the interest rate to 5 percent and/or extending the term of the loan from 30 to 40 years provide enough relief and equal to 31 percent of your gross monthly income before taxes?

    Depending on the solution that you chose for your loan modification you may be able to receive a reduced interest rate below 5%.  Experience has shown that homeowners who attempt a loan modification completely on their own without any assistance receive the worst results, if any results at all.  Additionally, the Making Home Affordable initiative can modify the interest rate below 5% but they are mandated to adjust up to the prevailing interest rate after 5 years. 

    Homeowners facing foreclosure may consider loan modification a possible solution but often wonder whether it’s worth the time and effort. Many dismiss the option, mistakenly assuming they can’t possibly qualify for one reason or another – perhaps they already received a foreclosure notice and think it’s too late, they’re too far behind on their payments to ever catch up, or they believe their bank stands more to gain by foreclosing on them.

    The truth is that you won’t know whether you qualify until you actually apply for the loan modification and discuss the possibility with us or your lender. The best that this short answer can do is to reveal the types of information the lender is likely to examine in reviewing your application:

    • A statement showing your willingness to keep your house. Your lender wants to see that you are committed to a long-term solution.
    • A hardship letter describing the event that has made your monthly mortgage payments unaffordable. Hardships can include loss of job, reduction in pay, medical illness, costly medical bills, a sudden and significant interest rate increase on an adjustable rate mortgage (ARM), and so on.  This needs to be from 1 to 1 1/2 pages long and be detailed.  This is the most important document you will present.
    • Your ability to afford a reasonable lower monthly payment. Lenders have all sorts of ways to lower your monthly payment, including dropping the interest rate, spreading payments over a longer time period (say 40 years rather than 30), reducing the balance due, forgiving late payment penalties and fees, and rolling missed payments into the balance due. If the lender is unable or unwilling to reduce the monthly payment to an amount you can afford, you won’t have a successful loan modification – nor would you want to.  Please note that it is extremely rare for a lender to reduce the principal on your loan.  Lenders will typically encourage you to Short Sale your home if you are upside down.
    • Supporting documentation, including W-2’s, current credit report, pay stubs, federal income tax returns, bank statements, and so on.

    To determine whether you qualify for a loan modification, most lenders are going to take a close look at your front-end debt to income ratio (DTI) – your monthly Principal, Interest, Taxes, and Insurance (PITI) divided by your gross (before taxes) monthly income.  

    Front-End Debt Ratio = Total PITI / Gross Monthly Income

    If your front-end DTI is currently at or below 31 percent of your gross monthly income you need to calculate your back-end DTI.  You may still qualify for a loan modification if your back-end DTI is above 55 percent.  The back-end ratio consists of all your debt payments (including house payment, car payment, credit card payments, and so on).  If you have a high back-end DTI your lender may be willing to modify your loan after you have completed a credit counseling course.

    Although your lender may have different guidelines, the FHA recommends that your back-end ratio not exceed 41 percent and your front-end ratio not exceed 29 percent. This is a pretty good guideline to follow in determining whether your new, lower monthly mortgage payment will be truly affordable.

    A more conservative approach to calculating debt ratios is gaining some support. It involves generating the DTI using net pay instead of gross pay – in other words, basing the calculations on your take-home pay. This makes sense – after all, the only money you really have to spend is your net take-home pay, not your gross pay. You probably won’t see this new approach gain nationwide support, because it would further tighten lending restrictions and disqualify many would-be borrowers, but it is out there and something to be aware of. Personally, it’s what I suggest people look at when applying for any credit, especially when considering a major monthly payment like a mortgage.

    Remember: You want to qualify for a loan modification only if the modification is going to leave you with a truly affordable monthly mortgage payment. You don’t want your lender qualifying you if the loan modification is simply going to put you back on the path to losing your home.