While more homeowners have begun to seek out mortgage debt solutions like loan modifications, they have been increasingly more difficult to obtain. Many lenders prefer other foreclosure alternatives like refinancing, which is resulting in more applicants being turned away. Although there is no list of qualification guidelines for securing a mortgage modification, there are a few general standards that most lenders follow.
A Rough Draft
Each lender has their own set of qualification standards for approving loan modifications, but two things are true (1) the homeowner must be able to demonstrate financial hardship and (2) the homeowner must be able to demonstrate the ability to maintain a modified mortgage payment. This means that applicants must be experiencing financial troubles, but not so much so that they can’t afford to make payments on modified terms, a very fine line to tread.
Lenders look for circumstantial evidence of a homeowner’s financial hardship such as a job loss, loss of spouse or other income contributor and medical illness or disability that kept them from working. Although it is possible to obtain a loan modification for having an unbearable debt load, most lenders won’t approve applicants that appear to have been irresponsible with their credit usage and debt accumulation. The general rule of thumb is that a homeowner must be carrying a monthly mortgage payment that is greater than 31 percent of their gross monthly income. Further, a homeowner’s total debt ratio must not exceed 45 percent of their monthly income in order to qualify.