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Mortgage Loan Modification Help – Why Your Lender May Ask For a Good Faith Deposit
Homeowners who have missed too many mortgage payments and want to apply for a loan modification should be prepared to make a down payment to their lender. In some cases, when you apply for a mortgage loan modification, your lender may require a good faith deposit. You should be aware of this possibility because if you are unable to provide what your bank requires, your loan modification application may be rejected. What is it and why might your bank want it?
A mortgage loan modification good faith deposit is often required by lenders when a borrower has not made any home loan payments for many months. A good faith deposit may be equal to a portion of the late payments, and the bank will require that amount as a condition to complete the loan modification. When and why will the lender ask for 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 detailing your income and expenses. These forms show your lender that while you can’t afford your current high 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 a loan exercise. So if you haven’t made any payments in a few months, you should still have some reserves left, right?
HAMP guidelines require that all loan modification terms include an escrow or escrow account for property taxes and homeowners insurance. This means that each month you pay your lender 1/2 of your annual tax bill and insurance bill. The bank then holds this amount in reserve until it’s time to pay the bill and they pay it for you. This is to avoid defaulting on your taxes and to ensure that their collateral is always secured.
If your taxes are due soon and there isn’t enough money in your current escrow account, or if you haven’t had one before, you may be required to deposit an amount to open the escrow account. This is another reason why you may need to have some cash to finalize your mortgage loan modification. While back taxes can be paid to you and then added to your loan balance, a blocked account may require some upfront funds from you. Don’t let this be a reason for not being able to modify your credit!
Unfortunately, many homeowners spend money they would normally put towards a mortgage payment. Sometimes, the money that would have gone toward the house payment is used for 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 gone toward a mortgage payment. Being able to pay a deposit in good faith to start your mortgage loan modification can be the difference between getting help and losing your home. If your lender requires a good faith deposit, you must be able to pay it, or you must have a very good reason for not having the money available and be able to document it. Try to put some money aside so that you can pay a deposit in good faith if your bank asks for it.
The federal program, HAMP, usually does not require a large down payment. Any missed payments can be added to the loan balance and included in the new modified payments. Obama’s plan offers a very low affordable payment, which aims to be equal to 31% of your gross monthly income. This is a very good plan to apply for, and since it contains standard approval guidelines, it is recommended that you prepare your application correctly to meet those guidelines.
There is actually a 4-step formula that banks use to determine if a homeowner qualifies for the HAMP plan. You can take the frustration and confusion out of preparing your application by using the Loan Mod Quick App software program – it actually does all the math for you so you can be confident with your application. Whether you apply for HAMP or another loan coaching program with your lender, be sure to take a few hours to prepare your documents correctly for the best chance of approval.
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