Homeowners who have missed many mortgage payments and want to apply for a loan modification should be prepared to make an initial payment to their lender. In some cases, when you request a mortgage loan modification, your lender may ask for a down payment in good faith. You should be aware of this possibility because if you are unable to provide what your bank is asking for, your loan modification request may be denied. What is this and why would your bank want this?
A good faith down payment for a mortgage loan modification is often requested by lenders when a borrower has not paid a mortgage for many months. A good faith down payment may be equivalent to a portion of the arrears and the bank will ask for that amount as a condition of completing the loan modification. When and why will the lender ask for this?
Suppose you are behind on your payments and do not pay anything for months. You apply for an amendment to the mortgage loan and prepare your annual accounts showing your income and expenses. These forms show your lender that even though you can't afford the current high mortgage payment, you have enough income to pay your bills and pay a new, lower modified mortgage payment. This way you convince the bank that you are a good candidate for loan training. So if you haven't paid anything at all for a few months, you should still have some reserves left?
The HAMP guidelines require that all loan modification terms include an escrow or repossession account for property taxes and homeowners insurance. This means that you pay 1/2nd of your annual tax bill and insurance bill to your lender each month. The bank then holds this amount in reserve until it is time to pay the bill and they pay it for you. This is to prevent your taxes from defaulting and to make sure their collateral is always insured.
If you have tax dues coming up and you don't have enough money in your current foreclosed account, or if you didn't have any before, you may need to deposit some amount to start the foreclosed account. This is another reason why you may need to put some money aside to complete your mortgage loan modification. While back taxes can be paid for you and then that amount added to your loan balance, a foreclosed account may require an upfront payment from you. Don't let this be a reason not to adjust your loan!
Unfortunately, many homeowners spend the money they would normally spend on their mortgage. Sometimes that money that would have gone towards paying for the house is used for other debts. But your bank wants to know that your home loan is your priority -- that's why it's so important to hold onto some of the money that would have gone to a mortgage payment. Being able to put down a down payment in good faith to start your mortgage adjustment can be the difference between getting help and losing your home. If your lender asks for a down payment in good faith, you must be able to pay it, or you must have a very good reason for not having money available and be able to document it. Try to put some money aside so that you can make a deposit in good faith if your bank asks for it.
The federal program, HAMP, usually doesn't require a large upfront payment. Any missed payments can be added to the loan balance and included in the new modified payments. The Obama plan offers a very low, affordable payment that targets 31% of your gross monthly income. This is a very good plan to apply for, and since it includes standard approval guidelines, it is recommended that you properly prepare your application to meet those guidelines.
There is actually a 4-step formula that the banks use to determine if a homeowner is eligible for the HAMP plan. You can take the frustration and confusion out of preparing your own application by using the Loan Mod Quick App software program - it actually does all the calculations for you so you can be sure of your application. Whether you are applying for HAMP or another loan training program from your lender, make sure you take a few hours to properly prepare your paperwork for the best chance of approval.
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