The loan modification business is exploding. With interest rates at the lowest levels in history, many homeowners are taking advantage of the opportunity to negotiate a lower interest rate and better terms with their bank.
Doing a loan modification yourself is a much more economical, and many times a more effective option, than refinancing. For one thing, if you do it yourself it doesn’t cost anything (unlike a refinance -which can cost $ 1,000s). Therefore, the only risk is the investment of your time. The rewards can be great if the bank approves your modification. Many times you can achieve the same or better results than if you had refinanced. However, many loan modification applications are denied because of simple mistakes that were made during the application process. These mistakes can be very easily corrected.
Here are the 2 top mistakes to avoid when preparing your loan modification:
1-Poor hardship letter- Your bank will require you to construct a detailed letter explaining the circumstances leading up to your hardship. Although it might sound simple, one mistake here will get your modification denied immediately. Here is an example of what not to say, ‘I took out a loan to buy furniture, wallpaper, appliances, some landscaping and now the payments on that loan are making it difficult for me to keep up with my mortgage payments’. Now, I am not suggesting that you lie, but here is a better way to say the same thing. ‘I recently took out a loan to make necessary home improvements and I am now finding myself struggling to keep up with the payments’. You are just presenting the same thing, but differently. The conclusion here is that if your bank thinks in any way that you went on a spending spree, you have blown your one chance for an incredible rate.
2-Overstating your expenses- As part of the loan modification process, you will be required to complete a monthly financial budget. Many people instinctively think that the worse off you present yourself to the bank, the better your chances are for help. Be careful, as this is not true and can actually hurt you. In this situation, the bank will conclude that even a loan modification is not going to help and it will only delay the inevitable, a foreclosure. As a result, you will be denied. All banks use a formula to determine your income and expense ratio. You must fall within the proper range to qualify.
You only have one chance to get it right when speaking to your bank. You can’t go back and change the numbers or rewrite your letter. It is important to have a basic understanding of the process before you even begin to speak to anybody. A Do-It-Yourself guide will provide you with all the necessary information and help you through the process. Armed with these tools, you have the potential to significantly reduce your mortgage payments for good and get back on the right track.
