Justin Perry's Mortgage Blog

Today's post is written by guest blogger Samantha Taylor.  For more information about Samantha please see her bio at the end of the post.

The purpose of loan modification is to help the distressed homeowners. A loan modification helps to reinstate loans, reduce the interest rate of the loan, reduce the balance on the existing loans, stop foreclosure proceedings, etc.

General qualification

Homeowners can qualify for a loan modification under the following circumstances.

* Financial hardship: Homeowner has to convince the mortgage lenders that he is going through financial hardship. He has to write a convincing hardship letter. It should contain a brief description of his hardship circumstances.

* Income: Homeowner has to document his income. He has to provide his pay checks, bank statements, award letters, tax returns, etc to the lender.

* Payment affordability: The homeowner has to prove that he can afford to pay the new modified loan. His debt ratio should be between 38% and 52%.

Obama loan modification guidelines

Obama home loan modification program is designed to help the homeowners avoid foreclosure. The homeowners can qualify for this program when they fulfill the following guidelines:

* Primary residence: The property has to be his primary residence. The lenders will verify the occupancy status through documents such as homeowner’s credit report.

* Financial hardship: The outstanding principal balance must be at least $729,750 for a single-unit property. The homeowners have to sign an affidavit of financial hardship and document their income.

* Time: Homeowners can qualify only when the loan has been originated before January 2009. The new modified payment will remain fixed for 5 years.

* Documents: Homeowners have to provide a financial statement, a signed 4506t form, paycheck, and a hardship letter to the lender.

* Trial period: If the homeowner qualifies for the loan modification, then he will be put on a 3 month trial period. The modification will be made permanent only when he makes the payments on time for at least 3 months and meets some document requirements. However, homeowners can qualify for HAFA short sale if they fail to complete trail period.

* Income: Homeowner’s monthly housing payment should be more than 31% of his gross monthly income. He has to prove that he has been unable to make mortgage payment due to a major change in his income.

It has been claimed that more than 1.1 million homeowners have applied for Obama home loan modification program till April 2010. Around 60,000 homeowners have shifted from trial status to permanent status in March 2010. Government has made the document requirements easier to understand in this year. Government has also specified that homeowner’s request has to be acknowledged within 10 days of application.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like 'Mortgage that you can afford' , ' Mobile Home Loan with Bad Credit' , and ' How much mortgage can I borrow"?