Loans Modifications: How To Qualify

Let’s talk about qualifying. When we obtained the loan we fit the guidelines. We had minimum credit scores, we either had a down payment or not, we had the required FICO score and debt to income ratio (50-55%). So, what’s the problem? Some smart people at the bank (those who gave us those crazy loan programs in the first place) or perhaps politicians decided that they’d try a 6 month forbearance agreement first (don’t worry I’ll get to why a forbearance agreement is crazier than crazy) and, to set the qualifying debt to income ratios at 31-38%. Now doesn’t that make sense! When is the last time wage earners have been given a 20% raise? How about modifying our loan at a lower rate hence a lower payment for 3 -5 years until we can get back on our feet monetarily and mentally? It seems to me that Investors would rather have some money coming in rather than take it in the shorts. Unfortunately, my thoughts are probably too simple. I am not taking into account all the special incentives banks get, the write-offs, the responsibility they have to their Investors to show profitable balance sheets.

So, what are our options? Work two jobs? Put the kids to work? Borrow money from friends and family? Dip into our retirement accounts? Walk away from our homes because they are probably upside down? Many people have been harassed beyond belief as they honestly try to pay their mortgage. One “financial planner” in the loan modification department told a borrower that “they need to budget better, why do you spend so much on groceries.” Another was told “we can’t offer you a modification at this time, but we can offer you a forbearance agreement.” Cool, they are finally going to help us. They are going to forbear all the late payments and we can start fresh. Not so fast! The typical forbearance agreement looks like this: Pay your regular monthly payment. Plus pay a portion of the amount past due. If all payments are on time for 6 months then we can revisit a loan modification

Modification agreement provides homeowners with a lower monthly mortgage payment which helps reduce their debt-to-income ratio to an acceptable level, as outlined above. Before you are granted a permanent modification, you will be given a three-month trial loans modifications (a.k.a trial payment period, or TPP). During this period, it is critical that you make your payment on time or you won’t be offered a permanent loan modification. You may need to fine-tune your budget and eliminate unnecessary expenses in order to afford your new mortgage payment.

Now I suppose I should be fair. Many people bought homes that they couldn’t afford in the first place. They were kinda enabled. Many people have lost their job, and a loans modifications would not make sense. So, what to do and what not to do? Do not do nothing! If you are upside down then a short sale will stop the collection calls, your credit will not be hit as drastically (you can buy again in 2-3 years), employers doing back-ground checks will look more favorably, and more importantly while your home is in the short sale process you can save money to move and catch your breath.

If you have equity in your home, and let it go to foreclosure you stand the chance of losing any equity you may have if the home goes to auction and the bid is low…then you get nothing. If you choose to list you will retain some of your equity and avoid the blemish to your credit. If the banks will not help you then you must help yourself. Foreclosure is debilitating both financially (future) and mentally.

Learn more about Obama Mortgage Relief Plan Qualifications.

Tagged with: loan modification • loan payments • loans modifications • mortgages • seek loan modification

Filed under: Mortgages

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