Q. Dear LoanSafe.org, Over the last year I have drained my entire savings just to keep up on my mortgage payments because of a major pay-cut at work. There is no way I can possibly manage my mortgage at a 6.5% interest rate and I’m now looking to pursue a loan modification to help lower the monthly payments. My question to you is, “How do I apply for a home loan modification?”
A. Applying for a loan modification is a wise choice and is the best way to lower your current interest rate to a more affordable amount. At this time you will need to gather all financial information required to begin the modification process. Your mortgage servicer is going to review your entire financial situation to determine eligibility for a modified payment.
If you are planning on applying for the government’s Home Affordable Modification Program (HAMP) you can use this tool to see if you will pre-qualify for this program. Below we will list what information you need to gather before applying for a loan modification.
– Financial statement: The financial statement is a worksheet you will need to fill out listing your total monthly income and expenses. It is crucial that all information on this form is as accurate as possible because this will play a key factor when determining eligibility. Do not leave out any other debts you have acquired because your servicer is going to run your credit report to verify the information you provided.
– Hardship letter: You will be required to write a hardship letter to outline the events that have caused your mortgage to become unaffordable. This piece of information is very important and needs to be well written and straight to the point. Do not have the letter exceed anymore then 1-2 pages because these lenders are completely overwhelmed with requests and its unlikely they will thoroughly review a 5 page hardship. You can find examples of this letter here on our website.
– Proof of income: To verify income for each borrower residing in the property your mortgage servicer will need the following information:
* For salary or hourly wages: two most recent months pay-stubs
* Self employed borrowers: most recent quarterly profit and loss statement
* Unemployment, social security, or disability benefits: Copy of statement or letter from the provider that states the amount paid and how long you will be receiving the benefits, or two most recent bank statements to prove the income being received.
* Alimony or child support: Copy of divorce decree, separation agreement, or other agreement in writing filed with the court explaining how much you will be paid and the amount of time in which it will be received. You can also provide two most recent months of bank statements to show receipt of such payment.
– Tax Authorization (IRS 4506T-EZ Form): The IRS 4506T-EZ Form gives your lender permission to request a copy of your most recent tax return you have filed with the IRS. Make sure to keep a copy of this for your records.
– Bank statements: Two months of your most recent bank statements will always be required when applying for a modification. This will allow the lender to see your total income and expenses coming in and going out each month. Be prepared to send in updated bank statements multiple times throughout this process.
Once you have gathered everything you need to submit your application you are now ready to pick up the phone and call your servicer. Find out which department will be handling your file and get the fax number and mailing address. You may want to fax it in a couple of times and send it certified mail as well so you can confirm when they have received everything.