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Loan modification income versus expense ratio

Discussion in 'Loan Modification' started by mar1978, May 14, 2010.

  1. mar1978

    mar1978 LoanSafe Member

    I am working with my bank on a loan modification - what income to expenses will the loan mod specialist require to qualify me for a loan mod - I am $400 in the whole per month if I pay my current mortgages. Should I obtain a second job and make at least $400 or more - leave my income as is or try to make more than $400 per month?<!-- google_ad_section_end -->
  2. imlars

    imlars LoanSafe Member

    The lenders I dealt with did not want to see a deficit at all. You want to break close to even, or have a monthly surplus of under $150.00. Rather than get a second job, could you rent out a room for $400-$500 per month? The lender will want proof of the rental income, but you can have the tenant write a short note verifying what they pay per month for rent.
  3. mar1978

    mar1978 LoanSafe Member

    Bringing in a renter isn't feasable for me but I will find another method to break even or be ahead $150 or so. Thank you very much for the info.
  4. mar1978

    mar1978 LoanSafe Member

    Does getting a second job deter from the loan mod success?
  5. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    It will if it gives you a surplus each month more than a couple hundred dollars or so. You can have four jobs if you want. Just do not show that your surplus is too much or you will be denied a mod and probably told to pay back the arrears.
  6. mar1978

    mar1978 LoanSafe Member

    Thanks for the advice - I will be sure to keep my surplus at a $200 or under
  7. cahomeowner

    cahomeowner LoanSafe Member

    I know it sounds crazy but yes you need to show a small surplus...200-300 a month. this means you need to take a look at your expenses and figure out what you can cut out or reduce i.e. phone, cell, cable, eating out, whatever. you can even change your withholdings on your paycheck so you bring in more.

    get your expenses down so you can show a surplus. if you show a deficit then your file will get closed and you will have to start all over. make sure when you submit your financials that you talk to the lender to see what numbers they are plugging into the system. remember show a surplus!
  8. ameer

    ameer LoanSafe Member

    When you say that you must show a surplus do you have to show a surplus figuring for your current high mortgage payment? Or should you figure for a lower payment?
  9. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    Using your current payment, always. If you have a neg am you must use the fully amortized payment (Unless its Aurora - they require you to use the neg am payment)

    Also when calculating income, better get it right or they will deny you. I may start a thread on this. Most people think they just multiply their paycheck by 2. This is wrong usually, you may have just undercalculated.

    Let's say I make $2500 per 2 wk pay period. I must make $5000 a month right? Only if I'm paid on the same two days each month, like 1st and 15th. Then I multiply my check by 24 and divide by 12 to get $5000.

    If I am paid bi-weekly, I have 26 pay periods and I actually make $5416.67 or $2500 X 26 / 12 (most wage earners are paid bi-weekly)

    If I am paid weekly it's weekly pay ($1250) X 52 / 12 = $5416.67

    Monthly is pretty self explanatory

    Self- Emloyed goes off a Year to date P&L, divided by the months or quarters covered and Taxable income is what must be used for both Gross and Net income, Self-employed really doesn't have a gross income.

    If I collect rent gross rent = 100% of rent, Net rent = 75% and must be used when calculating Affordability.

    AND FINALLY, sorry for the long post...IF your income changes up or down during the modification process, you will be approved or denied at that time based on what you MAKE not what you MADE.
  10. kkjsrq

    kkjsrq LoanSafe Member

    OK - can you clarify.....

    I use current payment - not proposed....and I use gross income....not net...???? I need to show a small surplus....

    I read about an "affordability" test - where they use proposed payment and net income as well as monthly debts....and I need to show surplus of a few hundred.

    Back to the rental income....I have a rental that I own 50/50 with ex....rent from tenant is $900 - it is all deposited into my account since I am the more responsible one....the entire mortgage also comes out of my accout - about $1100 per month. Ex pays me $100/month (1/2 of the monthly shortage). Divorce decree & tax returns reflect 50/50 ownership and 50/50 income/expense...

    How do I disclose the rent? that I get $450 (1/2 of the $900) plus $100?? and then they only hit me for 1/2 of the expense???
  11. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    I use current payment - not proposed....and I use gross income....not net...???? I need to show a small surplus....

    I read about an "affordability" test - where they use proposed payment and net income as well as monthly debts....and I need to show surplus of a few hundred.

    Only use net to offset expenses and show a surplus ($100 - 200 max). With respect to HAMP, Gross is used to calculate the HAMP payment and eligibility.

    Rent - include your divorce decree and CLEARLY notate this in your hardship letter, along with a breakdown of the terms and how you hash it all out with finances. (any mention of divorce is a good thing when dealing with modification)
    Use $450 added to your Gross for calculating HAMP eligibility. Then use 75% of that when calculating affordability
  12. kkjsrq

    kkjsrq LoanSafe Member

    OK - so when they do the affordability peice - they will factor in the mortgage on rental correct? Can I convince them to use only 50% of the $1100 as the expense??? Since is is 50/50 ownership. Or do they use the entire rental mortgage?

    Sorry to be such a pain but I am attending the WF Home Preservation Workshop on Sunday morning! I want to have all my ducks in a row.
  13. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    They will use the whole $1100 against you but offset the $1100 by documenting your ex's contribution using a paper trail of deposits by her and a detailed letter of explanation devoted to this issue alone. Stack it with the divorce decree.

    Shouldn't take much convincing with a court order and paper trail.

    The thing to understand is this is called underwriting and if the underwriter can't see it (on paper) it doesn't exist.
  14. kkjsrq

    kkjsrq LoanSafe Member

    Yep, well aware of "underwriting" I have been a loan officer since 2001 - in Florida - where we are getting killled......I went back to school and picked up new job in new line of work.....still trying to do mortgages - but market and guidelines are just horrible.

    OK - Here are my stats....can you help tweak please:

    3333.34 Gross (1666.67 paid 1st & 15th)
    550.00 Rental (900/month from tenant divided by 2) plus $100 from ex
    3883.34 Total Gross

    Current Expenses
    1269 1st mtg 6.5% 30 yr fixed first 10yrs IO (not escrowed)
    46 2nd mtg (heloc IO)
    1069 rental house mtg (this is full payment - ex responsible for 1/2 legally)
    169 credit card
    325 utilities - can tweak
    260 health insurance - can tweak
    100 child care - can tweak
    60 gas for car - can tweak
    400 groceries - can tweak
    97 car insurance

    My 31% Hamp proposed would be roughly 1204 (923 PI + 281 escrow) - well within 2% and 26 to 30 years - no need to go out to 40

    233,213 1st mortgage balance
    19,150 2nd mortgage balance
    115,000 estimate value per zillow/cyberhomes and listings on street

    Still struggling with the affordability part....please help!
  15. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    Need Prop taxes and Ins or did I miss tthem? OH and NET INCOME need that for affordability
  16. kkjsrq

    kkjsrq LoanSafe Member


    170 insurance
    111 prop taxes

    2854.72 net (1427.36 paid 1st & 15th)
  17. underwatertoo

    underwatertoo LoanSafe Member

    I don't get it. If you can show a surplus before the mod with the current mortgage, why would the bank give you a mod?
  18. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    OK, Affordability looks thin and this is not a vanilla mod. The rental is going to cause a couple of ripples of discontent on the lender end from a cost standpoint but let's see what I've got here...

    If I give your ex $450 of the rent, that leaves you with $337.5 at 75% (you need to put $450 on the worksheet - they will make the calculations at their end).

    When I make calculations I make them in terms of Final Audit, when they use the 75% of rental income so here goes:

    Net income of $2833 + $338 Rent income = $3171. (the net you submit will have rent at 100% or a total net or $3283

    You need to do some calling to figure out how to deal with your rental income and expense (your case is hinging on how it is viewed from what I can see) I revise my earlier statement on how they see the rental mortgage payment, I kicked this one up to a mitigation wizard I know and he said to call WF - first ask who the investor is on your loan. Then ask how they view a rental property like yours where you are halving it with an Ex. If you do not get a specific answer, hang up and call right back until you get a competent rep who will tell you specifically if the investor sees you wholly responsible, half responsible or however they view it for both income and expense. I wish we had time to have you do this and then evaluate the answer but in the grand scheme of things, it really doesn't matter. You can always try resubmitting.

    The answer I want is that they view you as responsible for only half of the mortgage payment - $534, that makes for hard expenses (seen on your credit report) of $2299.

    That leaves a surplus of $872 that needs to be soaked up by regular expenses leaving around $127 surplus (I made that number up but odd numbers make more sense to underwriters) so your expenses including gas, food utilities, etc can't be more than $745 - the expenses you gave me were too high. I would delete Health Insurance and child care entirely. Trim everything else down so it fits. Like, tell them you spend only $200 a month on food and lower all the other down as well.

    I say a surplus of $127 but this is seen by the auditor when they count only 75% of your rent. Your submission surplus will be more. That should be OK - people with rental income always get denied because they don't know about the 75% during audit and don't leave enough surplus to not go negative.

    Understand this advice is given without seeing any of your information so obviously it's a crap shoot but provided WF and the investor view your rental income and mortgage payment the way I think they will, you may have a shot. Understand, your finances look very thin from a lender's standpoint so you may run into trouble at final audit. From now on, if you are missing payment sock away as much of that payment as possible in an account WF doesn't know about.

    If this post has thoroughly confused you, I wouldn't be surprised. But that's the way the modification process was designed. But I really hope this helps.

    Any other vets out there disagree with my assessment I welcome input.
  19. SurfwhenUcan

    SurfwhenUcan LoanSafe Member

    A $100 - 200 surplus puts you at over 95% net DTI and indicates strong likelihood of default but can be avoided by payment relief. A negative before modification, based on the last couple of years, means a strong likelihood of redefault after modification.
  20. kkjsrq

    kkjsrq LoanSafe Member

    Thanks!! I will nix health insurance & childcare. Are they going to ask for proof of auto insurance? If not, I can reduce that a little bit.

    During my years as a lon officer, we often had to fight underwriters on rental income/expenses in co-owned situations. My feeling is that it should be based on ownership percentage & tax returns.....mine reflect 50% of both the expense & income....or then need to give 100% on both income & expense (75% on the affordability aspect).

    It does not seem fair that they give 50% of income & 100% of expense. I will talk to WF and change my game plan accordingly....if they hit me for 100% of the expense, then I will claim all the rent.... which is silly since divorce decree & tax returns support 50% of each.

    I do get 500-600 per month from current partner for living expenses....I would just rather not use to quality - I do have cancelled checks to prove - so not a huge deal...it just really negates savings on a new proposed 31% payment....

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