Here is what you will need to know to qualify for a California loan modification:
- A statement showing your willingness and want to keep your house. Your lender wants to see that you are committed to a long-term solution to stay in your home.
- A hardship letter describing the event or events that has made your monthly mortgage payments unaffordable to you do to those events. 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 much more (ask for assistance).
- 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 ( 30years rather than 15), reducing the principle balance that is due, forgiving late payment penalties and fees, and rolling missed payments into the balance (back end) due. If the lender is unable or not willing to reduce the monthly payment to an amount you can afford, you won’t have a successful loan modification – nor would you want to as this will not ultimately help you.
- Supporting documentation, including W-2’s, current credit report, pay stubs, federal income tax returns, bank statements, and so on.
To determine if you qualify for a loan modification, most lenders are going to take a close and detailed look at your debt to income ratio (DTI) – your monthly debt payments divided by your gross monthly income. (Debt payments do not include what you spend on groceries, utilities, clothing, gas, and so on.) The back-end ratio consists of all your debt payments (including house payment, car payment, credit card payments, and so on). The front-end ratio covers only your monthly house payment including anything you pay into escrow to cover property taxes, homeowner’s insurance, and any homeowner association fees (HOA).
Debt Ratio = Total Monthly Payments / Gross Monthly Income
Although your lender may have different guidelines, the FHA recommends that your back-end ratio not exceed 40% and your front-end ratio not exceed 31%. This guideline will help you in determining if your new, lowered monthly mortgage payment will be truly affordable for you.
Here is list of hardships that lenders might consider during your loan workout process:
- Adjustable Rate Mortgage Reset- Payment Scock
- Illness
- Loss of Job
- Reduced Income
- Failed Business
- Job Relocation
- Death of Spouse or C0-Borrower
- Incarceration
- Divorce
- Marital Separation
- Military Duty
- Reduced Income
- Medical Bills
- Damage to Property (natural disaster or unnatural)
- Other (Please Specify)
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 once the terms are over, qualifying for a loan modification can be very beneficial for California home owners and we can help stream line your modification process today!
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