The key to a successful loan modification application is properly presenting your income and expenses to your loan servicer. A very slight difference in your income or your monthly spending could cost you an application denial instead of enjoying the benefits of reduced mortgage payments. Few tricks may help you to present yourself to your lender in a way that would ensure better chances of success.
HAMP Income and DTI Requirements
HAMP revolves around percentages and ratios. As it is a nationwide program, there are no individual considerations, just pure statistics mated with mathematics. The first number a borrower should keep in mind is 31%. This number represents a maximum portion of your gross monthly income that should be contributed towards your mortgage payment under HAMP. If your monthly mortgage payment is lower than 31% of your monthly paycheck, then you should not waste your time applying for a loan modification. If you are above even by 1%, then you are a likely candidate for mortgage payment reduction under HAMP provisions. Do not get too excited, though, as there are some other numbers and ratios to consider.
Excess Monthly Cash Flow Guidelines
This complex phrase means very simple and obvious thing your monthly budget, i.e. your earnings less your expenses. What you are going are going to find out here is either that you are chronically short on cash or you have some leftover money every month. No matter whether you end up being in surplus or in deficit, make sure that you play the numbers to your advantage. You should budget your mortgage as 31% of your monthly income. Your surplus or deficit should not exceed 10% of your monthly paycheck. These numbers would show your lender that you would be capable of handling modified payments without overextending yourself; otherwise, they may decline your application because loan modification would not prevent you from future loan defaults due to insufficient cash flow.
Net Present Value Assessment
Lenders utilize the Net Present Value (NPV) test in order to establish how a loan modification under HAMP would affect their bottom line. It is calculated using a complex formula that considers multiple factors to include the current market of your home, your interest rate, your mortgage principal balance, your income and expenses, and some others. What NPV test accomplishes is that it establishes the worthiness of utilizing government incentives included in HAMP for lenders. Even negligible changes to the way your expenses are calculated may result in passing of previously failed test, and vice versa. Should you fail, a lender would reject your HAMP loan modification application and present you with some alternative options instead.
Above are the major guidelines lenders abide by when making loan modification application evaluations. While there are some other things taken into the equation, complying with the major three guidelines explained above would most likely guarantee a successful loan modification. Playing with numbers may be difficult and time-consuming, but when your home is at risk it is very well worth doing, especially since adjustments to your financial statements may be done at any time preceding the loan modification decision.