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6 Things To Prepare Before Attempting A Loan Modification
If mortgage loan modification is already on your mind, the chances are that you are already receiving letters from the bank… that might be in a tone that is anything but friendly offering to work something out… in red fonts…
The saving grace is that if you do indeed receive a notification in the mail offering to work towards a compromise with the lender, it means that the bank deems your credibility good enough to warrant some sort of negotiation.
They are not ready to give up on you and pass your case to the foreclosure or bankruptcy departments.
Yet while getting an invitation to work something out puts you into the loan modification process, it does not mean that you cannot get there without receiving one such letter.
If you are having trouble with meeting your mortgage payments, there is nothing wrong with initiating such inquiries.
In fact, this pro-active attempt to reach out can make the lender more receptive to your proposals.
The bank after all, is in the business of making money. The last thing they want is for their borrowers to stop paying.
They might even refinance a loan themselves.
Before you start negotiating with bankers on the phone or a meetup for loan modification, remember that you want to present your financial situation as a temporary or manageable one. And that they have nothing to worry about as long as you are given more time or if certain terms are changed in the original mortgage.
Here are some documents and preparation to help you get ready.
1) Personal financial records
Nothing can be more reassuring to a lender than to see a borrower generating a consistent personal income.
If you are currently employed, print out the most recent computer pay stubs as proof of income. And if you are self-employed, get your tax statements ready.
If you are generating income from other sources, do get a record of these items too.
- Rental income
- Cash in time deposits
- Other assets
The idea here is to present yourself as someone who is not exactly poor… and that your mortgage repayment problems are more of a cash flow issue.
2) Real estate market data
To reinforce the notion that the property in question is a valuable one, there is a need to show market data that indicates the value of it.
In this area, you might want to collect market indicators including population statistics, news about major employers moving into the city, recent transaction prices, rental rates of houses comparable to yours, etc.
If for example, the outstanding loan balance is $200,000 and the house is worth $500,000, a lender might be assured that it is a valuable asset. And even if you end up going bankrupt, they can still easily get their money back from selling it.
So why not give you a chance if the situation is not so dire?
Even if they agree to a short sale, they might not get as much money back compared to agreeing to a modification.
3) Copies of late notices
A lender will not be happy at all if you are living a lavish lifestyle but unable to make the mortgage.
To eliminate the possibility of them having this impression linger, prepare copies of notices of overdue payments like:
- Utility bills
- Phone bills
- Car loans
These items will show that you are not fooling around. You are really in a financial tight spot. So much so that you are also late on the bills of essential services.
4) Uncommon events
If your temporary cash problem is due to some extraordinary events, don’t expect the bank to take you on your words.
There is a need to prove the existence of these events.
- Divorce papers
- Medical bills
- Retrenchment and job layoffs
- Sudden increase in mortgage payments
- Death in the family
Many people might be surprised at how much empathy bankers can have on the customers.
The problem is that consumers are often emotional when dealing with banks and fail to be calm when communicating with them. Then spreading stories around about how bad a lender is for not entertaining their emotional requests.
If you are calm and collected, and present your problems like an adult, the chances are that they will listen and try to help you as much as they can.
5) Repair list
If you are lagging behind on payments because you are trying to increase the value of the house, anyone in the right frame of mind would take a closer look before judging you as a guilty defaulter.
Let’s put it this way.
If you are behind on repayment because you are spending or need to spend on repairs and upgrades so that you can increase rentals, it would be a good long term plan.
Even better if the remodeling works will actually increase the value of the property.
Maybe you are not able to get tenants because the place needs repairs. Maybe you need to get the plumbing fixed before a tenant sues you. Maybe you are installing solar panels on the roof to increase energy efficiency.
These actions don’t present you as a bad landlord. If anything, they show that you are a responsible landlord who looks ahead.
A repair list can help a bank officer understand you situation better and hopefully help you out by modifying the loan.
6) Bad tenants
Especially for investment-grade rental property, bankers know that a huge portion of mortgage payments will come from rental collections.
This means that late rents and non-paying tenants can be the main source of your cash flow problems.
In this case, show proof of maverick tenants who don’t give a damn about due dates. Or evictions you have undertaken or in the process of conducting.
Do also include proof of vacant rentals.
Finally, do note that whether you are trying a loan modification or getting a forbearance agreement, avoid living in denial.
Sometimes, the best logical move to make is to let go of the property. Especially if it is burning a hole in your pocket with little chance of turning it around.