Most borrowers do not know that a hardship letter is required to process an application for loan modification. Even those who do, often do not understand what the bank needs to see in this letter.
The time and effort it takes to do a proper hardship letter will repay you with a successful loan modification that lets you keep your home. Even if you qualify, the hardship letter is necessary to prove that you do. It is like pleading your case in court. This document is essential to convince your bank that you are indeed suffering financial hardship. Writing this letter with the proper attention to detail proves to the bank that you deserve their serious consideration.
While the proper way to write a hardship letter varies, some elements always apply:
1. Before you even start, gather your financial records for the previous twelve months, just as you would in order to file your annual income tax statement. Put the most important records on top, within easy reach, so that you can refer to them as you write. The hardship letter must be detailed, in order for the bank not to pass over your loan modification request.
2. Make a separate list of your financial difficulties, going back for at least twelve months. Get the right dates written down, if you feel this information will be useful for your bank. Be as clear and efficient as you can, to prevent confusion and save your lender's time.
3. Now calculate just how much you can pay on your monthly mortgage. List your complete household income, then deduct all expenses. If you are not sure about a particular amount, or if it varies widely, then do an average or at least make a guess. This shows your lender that you are a borrower who is conscious of money. In this way, they see that you are worth their effort.
With this, you are off to an excellent start. Next, keep in mind these points as you draft your hardship letter for loan modification:
- Be neither too detailed nor too vague. Yes, an emotional appeal may help, but your bank needs convincing evidence in order to support its granting of your request. Present the facts and show how they have impacted your budget.
- Even if you plan to sell your house, do not disclose this to your lender. The bank must believe that you intend to stick with them over the long haul, in order to go to the trouble of modifying your loan.
- Avoid too many specifics regarding your private life. The bank is not interested in your terrible divorce or your complicated student woes. Only give them the information they need to make a determination, by sticking to the financial facts.
- Be respectful and well-mannered in your hardship letter. Any frustration you may have experienced with your lending institution does not belong in this letter. The point is to get the help you need, as soon as possible.
- Provide any supporting documentation, including recent bank statements and all other official information that shows recent financial hardship.
With these points in mind, you are on the road to negotiating a successful loan modification agreement. Nowadays this help is being extended to more homeowners than ever, once they put in the time to prepare the appropriate information for their lender, and effectively state their case.