President Barack Obama believes loan modification is the answer to keeping distressed borrowers in their homes and will stop the plummeting home values. The $75 billion Homeowner Affordability and Stability is dedicated to reworking troubled loans, the loan modification plan is a big bet but with the proper financial incentives experts believe it will work. Obama’s loan modification plan calls for restructuring 4 million bad mortgages. Here are some important tips on how you can qualify.
1. Loan Modification Plan focuses on Payments
Obama’s plan relies on the belief that people would prefer to stay in their home even as the house value declines if they could afford their monthly payments.
2. 31% Debt Income Ratio
The loan modification plan Obama has introduced requires lenders to decrease the borrowers payment to 38% of their gross monthly income. The government will provide assistance to decrease it further to 31%. If lowering the interest rate to 2% still does not result in payments being less than 31% than the terms of the loan will be extended up to a maximum of 40 years.
3. $5000 Financial Incentive for You
Lenders are now provided with a $1000 financial incentive to perform a loan modification and for each year the borrower makes payments the lender is eligible for another $1000, up to 3 years. Similarly the borrower can receive $1000 up to 5 years for every year they stay current with their modified mortgage payments. Obama’s plan stipulates that neither lender nor borrower can receive the additional $1000 until the payments have been made for three months.
4. Owner Occupied Only
Obama’s loan modification plan is aimed at the average American and not rich homeowners or investors. Because of this to qualify for a portion of the bailout the mortgage in question must be the primary residence and not have an outstanding balance of over $730,000.
5. How to Apply
With 4 million Americans potentially receiving a loan modification the most important aspect of receiving a loan modification is to start immediately. The sooner you can complete a loan modification package and contact your lender the better are you changes. Similarly, with so many Americans wanting to take advantage of Obama’s loan modification plan lenders will not have time for partially completed applications. Therefore, it is critical that when you submit your application to your lender you must not be missing any documents since it could delay your modification for weeks and ultimately jeopardize you keeping your home. The easiest and fastest way to learn about the loan modification process is a Complete Loan Modification Kit which will provide you with all the documents you need including hardship letter templates, extensive step by step how to guide, document checklists and financial statement templates.