Homeowners who have missed several mortgage payments and want to apply for a loan modification should be prepared to make an initial payment to the lender. In some cases, when you apply for a mortgage loan modification, the lender may ask for a good faith deposit. You need to know this possibility, because if you are not able to provide what your bank requires, your loan modification application may be denied. What is this and why might your bank want it?
Lenders often ask for a good faith mortgage loan modification deposit when the borrower has not made any home loan payments for several months. The good faith deposit may be equal to a portion of the late payments due and the bank will require this amount as a condition of completing the loan modification. When and why does the lender require this?
Let’s say you fall behind on your payments and don’t pay anything for several months. You apply for a mortgage loan modification and prepare your financial statements showing your income and expenses. These forms show your lender that while you can’t afford a higher current mortgage payment, you have enough income to pay your bills and can afford a new, lower-modified mortgage payment. This is how you convince the bank that you are a good candidate for the loan exercise. So if you haven’t made any payments at all for a few months, you still have some reserves left, right?
The HAMP guidelines require that all loan modification terms include an escrow account or reservation for property taxes and homeowners insurance. This means that each month you pay 1/2 of your annual tax bill and insurance bill to your lender. The bank then holds this amount as a reserve, until it is time to pay the bill and they pay it for you. This is to avoid defaulting on your taxes and to ensure that their guarantees are always guaranteed.
If your taxes are due soon, and there aren’t enough funds in your current withholding account, or if you didn’t have one previously, you may be required to make a deposit to start the withholding account. This is another reason why you need to set aside some money to finish your mortgage loan modification. While back taxes can be paid on you and then that amount added to your loan balance, the holding account may require some upfront money from you. Don’t let this be a reason you can’t modify your loan!
Unfortunately, many homeowners spend the money they would normally put towards paying off the mortgage. Sometimes that money that would have gone towards paying off the house is used to pay off other debts. But your bank wants to know that your home loan is your priority – which is why it’s so important to keep some of the money that would have been set aside to pay off the mortgage. Being able to pay a good faith deposit to start a mortgage loan modification could be the difference between help and losing your home. If your lender asks for a good faith deposit, you must be able to pay it back, or you must have a very good reason why no money is available and be able to document it. Try to set aside some money so you can make a bona fide deposit if your bank requests it.
The federal HAMP program usually does not require a large down payment. Any missed payments can be added to the loan balance and included in the new adjusted 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 to, and since it features standard approval guidelines, it is recommended that you properly prepare your application to meet these guidelines.
There is actually a 4-step formula that banks use to determine if a homeowner qualifies for HAMP. Take the frustration and confusion out of setting up your app with Loan Mod Quick App – it actually does all the math for you so you can be confident with your app. Whether you’re applying for a HAMP or other loan trial program with your lender, make sure you take a few hours to properly prepare your paperwork for the best chance of being approved.