Need loan modification help to get a lower mortgage payment? There is $75 billion dollars waiting for eligible homeowners, but you must be able to prove you are qualified and can meet the approval guidelines put in place by the Federal government and your lender. An eligible borrower must meet certain debt ratio requirements, do you know how to calculate your ratios and complete your budget correctly?
First off, let's explain what debt ratio is and why it is important to the banks. Debt to income ratio simply means the percentage of your income going out each month for expenses as compared to how much money you earn each month. This is translated into a percentage figure that your lender will review. Every loan modification program has a debt ratio percentage that is acceptable. Most lenders look at 2 ratios-one that is just for your housing expense and one for your overall expenses-including housing. Housing debt ratio for example:
Income = $3500 gross per month House Payment (including property taxes, insurance and homeowners dues) = $1850 Housing debt ratio = 1850 divided by 3500 = 51.4% Your ratio is the way the banks determine if you can afford to maintain the mortgage payment. If your ratio is too low, that can mean that you are not facing a financial hardship situation and do not need a loan modification. If your ratio is too high, then you will be a risk for default in the future. The Federal program implemented by President Obama aims for a 31% modified payment-including taxes, insurance and homeowners dues. This means your new, modified mortgage payment would be reduced so that it now equals just 31% of your gross income. However, if your total debt ratio-including the rest of your bills & expenses-exceeds 52% then you may have to agree to credit counseling.
Most lender guidelines allow for an acceptable range between 38-45% for their proprietary loan modification programs. It is critical to work on your financial statement before you ever call your lender. You may need to make some minor adjustments to your budget in order to fit into the debt ratio requirement and you want to know this ahead of time. Make it easy by using a software program that is designed just for homeowners to help them apply and qualify for the federal loan modification plan, HAMP. All you do is input your own income and expenses and the software calculates it all for you. The debt ratio, new target payment, new interest rate and disposable income are all figured automatically. You can see immediately if you might need to make some adjustments.
When you are able to figure your own ratio and make adjustments to your budget so that you fall within the approval guidelines, you are giving yourself the inside edge you need for quick approval. You only get one chance-make sure you understand how to complete your budget, adjust your expenses and are able to meet the requirements for approval.
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