Hardship Letters


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In order to qualify for a loan modification, the borrowers must demonstrate that a hardship exists and that they cannot continue to pay the existing level of mortgage payments. In addition, the borrowers must demonstrate that they can and will make monthly payments at a reduced level that is acceptable to the real estate lender. In short, the borrower / applicant must provide to the lender, a credible hardship letter, required documents, and proof of current income.

Lenders evaluate front end income to debt ratios and back end income to debt ratios as defined below:

Front End Ratio is principal, interest, taxes, insurance and homeowner association fees divided by the total gross income. This ratio generally should not exceed 38%.

Back End Ratio is the same as above except that all other debt is added in. This ratio generally should not exceed 45%.

Reasons often cited to justify a loan modification include the following:

  • Increase in monthly payments

  • Period of unemployment

  • Income has been reduced

  • Divorce or separation

  • Medical problems and bills

  • Excessive debt

  • Business failure

  • Property damage

  • Incarceration

  • Military service

  • Job relocation

  • Death of spouse or family member


 

 





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