Debt To Income Ratio And Loan Modification
How will my debt to income ratio affect a loan modification? Do percentages apply when doing a loan modification? How low should I expect the mortgage company to lower my interest rate if it is already 5.535%?
Mortgage Loan Modification Answer:
by Loan Modification Expert - Dan North
In a Making Home Affordable Modification does have rules regarding the debt to income ratio after the loan is modified. If your debt to income is greater than 55% after the modification you will be required to get debt counseling from a HUD certified debt counselor.
The debt counseling is paid for by HUD so there is no charge to you but you will have to attend several meetings with the counselor and will probably have to read some materials and work out a budget and handlings to lower your debt to income ratio.
Your loan modification would not be stopped if you did not attend but it is a requirement that you see the HUD certified counselor. I have not seen any government guideline that covers failure to appear for debt counseling, only that you get signed up and scheduled for debt counseling. The debt counselor is only paid after the counseling so I am sure that you will be called by the counselor and reported if you do not attend.
How Low Can I Modify My Interest Rate To?
- Under the HAMP program the 1st mortgage can be lowered to as low as 2% to lower your monthly mortgage payment to 31% of your gross income.
- If after lowering the interest rate to 2% your mortgage payment is still higher than 31% of your gross monthly income then the length of the loan is extended to as long as 40 years.
- If after extending the loan to 40 years your mortgage payment is still higher than 31% of your gross monthly income now your unpaid principal balance will have a portion deferred interest free to finally lower your monthly mortgage payment to 31% of your gross monthly income.
How Do You Know If The Lender Will Approve The Loan Modification After The Trial Modification?
Your lender will do what is called a Net Present Value Test (NPV Test)
and it is pass or fail. Basically the test determines if the lender saves more money by modifying the loan or foreclosing on the mortgage.
The test is a computer program and the math takes a college degree to understand so once I get someone to program it for me I will add it to the website but until then it is a judgment call on what lenders have modified in the past and how many bank owned foreclosures are in the area.
Even if you make all your Trial Loan Modification payments it is possible that the loan modification will not be approved if the lender feels he will save more money by foreclosing.
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