Loan Modification Guidelines

There are a plethora of Loan Modification Guidelines out there for a number of lender and government programs that exist to help homeowners lower their mortgage payments and stop foreclosure.  Most likely, you’re looking for information on how to get a loan modification and want to make sure that you qualify.

We’re going to take a look at the guidelines for one of the major Loan Modification Programs, Making Home Affordable.  Making Home Affordable has both a refinance side and a loan modification side, however, it seems that more homeowners can benefit from modifying their mortgages.  This program is also known as the Treasury Loan Modification Program, or the Obama Plan.

Qualification right off the bat is contingent on a couple of key factors.  First, your home needs to be your primary and only residence.  This means that at the time of your application, the home that you are having trouble making payments on has to be the only home that you own.

Second, the amount that you owe on your mortgage needs to be less than or equal to $729,750.  Seems like an arbitrary number, right?  The fact of the matter is that this Government Initiative exists to help homeowners that have what is termed “Conventional” mortgages, rather than those that own huge mansions that have been financed though “Jumbo” loans.

Thirdly, you need to have had your mortgage for at least one year.  Regardless of how long you’ve owned your home, it’s not entirely fair for you to qualify under the loan modification guidelines if you’ve recently refinanced and pulled all the equity out of your home, only to find that you can no longer afford the payments.

The final qualification is whether or not reducing your housing payment to 31% of your gross monthly income would put you in a better financial situation, solve the hardship you are experiencing, and help you avoid foreclosure.

To determine the payment that you would qualify for under Making Home Affordable or HAMP guidelines, merely multiply the amount that you make each month before taxes by .31.

If you are self-employed, take an average of your last 3 months income after expenses and multiply that number by .31.  The product that you have is what is commonly referred to as your “affordable housing payment”.

From here, you need to determine what interest rate you need to have to qualify for your affordable housing payment, and make sure that the interest rate you are requesting is within the program parameters.

To do this, we need to work backwards.  Break down your taxes and insurance into monthly figures and subtract the amount that you pay per month from your “affordable housing payment”.  This will be your new “P&I” (Principal & Interest) payment.

Use a mortgage calculator and put in your current loan amount, 30 year term, and to start, a 5.5% interest rate.  Calculate the monthly payment and check if this is the same as your Affordable Principal & Interest payment.  If it isn’t, decrease the interest rate by .125% (5.375%) and calculate again.

Continue decreasing the interest rate by eights (.125) until you reach the affordable payment you need.  If you reach 2% on a 30 year term and the mortgage payment is too high, change the number of years to 40 years and start over.

Keep in mind that a lower interest rate and longer loan term will lower your payment more, however, the more you decrease the rate the less likely your lender is to convert your Trial Loan Modification to a Permanent Loan Modification.

This is the bulk of the qualification for the Treasury Loan Modification Program.  To complete the qualification, create a financial prospectus by drawing up a detailed list of all income, expenses and assets.

Determine your bottom line net cashflow by subtracting your total current bills from the amount that you take home each month (net income) after taxes.  This should be a negative number.

Be sure that after the modification your proposed net cashflow is a positive number.  To determine your proposed net cashflow, subtract your proposed expenses (the same expenses as before, but with your “affordable” payment instead of the amount you pay on your mortgage now) from your net income.  This should now be a positive number.

So, if you are minus $250 currently in terms of net cashflow, and under the loan modification guidelines, you are supposed to save $500 though your affordable payment, you should end up with positive $250 cashflow proposed.

I understand this can be a little bit confusing, and this is truly just the beginnings of getting qualified for a loan modification under HAMP.  But this will get you into a Trial Modification.  If you’re a homeowner in need of financial assistance and you’re worried about losing your home, we can get a loan modification done for you.

Take a look through ModificationZoom.com; you’ll find all the information that you need to get a loan modification on your own, however, if you still believe that you need help, contact us using the contact form on the right.  There’s a reason why our clients call us the best loan modification company.

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