The Federal Government has set aside $75 billion dollars to help struggling homeowners with a loan modification program so they can avoid foreclosure. The goal is to help 5 to 6 million families get a lower mortgage payment so they can afford to stay in their home. This plan is not for everyone-find out if you may qualify for help by learning the formula your bank will use.
Who qualifies for this loan modification program? Here are some general guidelines for eligibility:
Homeowners must live in the property as their primary residence Loan must have been originated prior to January 1, 2009 Not required to be delinquent on payments, but must demonstrate financial hardship now or in the near future Must be able to provide proof of income and have a current mortgage payment that is greater than 31% of your gross monthly income Loan amounts of $729,750 or less for 1 unit properties-higher for 2-4 units
What are the primary features that will be offered to qualified homeowners to arrive at an affordable payment based on 31% of their gross monthly income?
Reduce interest rates to as lower as 2% Extend loan terms to 40 years Principal reduction with the Government sharing in the costs with lenders
What is the formula the lenders will use to determine who qualifies?
Arrive at a target payment by multiplying the gross monthly household income by 31% Subtract the monthly costs for homeowners insurance, property taxes, and any homeowners dues = the new principal and interest payment Using the current loan amount, reduce the interest rate to as low as 2%, extend the term to 40 years and if necessary defer or forgive some principal balance to achieve the target payment If the target payment can be reached using the standard methods of modification, then the homeowner is a good candidate for assistance.
While this loan modification program is voluntary, most lenders and servicers are expected to participate. The Federal government is offering financial incentives in the form of $500 payments to servicers and $1500 to mortgage holders that offer a loan modification program to their borrowers as well an annual payments. In addition, homeowners who stay current on their new modified loan will be given a monetary incentive for each year they remain current, for a total of $5000 at the end of 5 years.
A successful homeowner will understand what paperwork will be needed to submitted to their lender and, just as importantly, how to complete their paperwork properly so the loan modification application is processed quickly. You can use the very same formula your lender will use to pre-qualify yourself and adjust your budget before the bank reviews your application. Do you know how to figure your own debt ratio and determine your new target payment? This is critical so that you can make any necessary adjustments to your monthly budget in order to fit into the approval guidelines.
If you feel like you would like some help to make certain that you have prepared your application correctly, take advantage of a software program designed to mimic the federal guidelines. All you have to do is input your own monthly income and monthly expenses and all the calculations are done for you automatically. Your debt ratio, target payment, new interest rate, disposable income and all the other critical figures are immediately calculated. This helps you to fine tune your application so that you have the best chance of qualifying for assistance with your mortgage. Avoid mistakes and save hours of time and frustration-get it right the first time.
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