What Are the Income Qualifications for a Loan Modification?

This is a great question because in any loan modification the determining factor usually is the debt to income ratio and if you think about this in terms of the bank it makes sense.  When the bank qualified you for the loan they did it based on your income (or some fake assessment of your income if we are talking about the boom years).  To qualify you for a loan modification they want to do the same thing.  The difference now is the reason for why they want your income calculations.  Historically when qualifying for a loan the bank used a borrower’s income to conclude if the borrower could afford the loan, or to determine, in other words, what size loan they could afford.  In a loan modification, they use income for a few reasons.  Yes, they want to make sure that you can afford the new modified payment, however, they also want to get a perfect idea of your income so they know that sweet spot where you can afford the payment, will make the payment, but they are giving up as little as possible.  At the end of the day the banks drag out these modifications because they want to 1. Discourage it, 2. Determine the true income so they can give up as little as possible, 3. Spend time concluding if it even makes sense to modify the loan at all.  So what kind of income works?

When modifying a loan if you are hoping to get a permanent solution then you need to have permanent income.  Typically the banks are looking for a candidate who is currently around 40% to 65% mortgage DTI based of their gross income.  The goal is to then bring these borrowers down into the 31-38% DTI range.  There are also a lot of other programs.  For instance, the HAMP program has now expanded to include a 6 month forbearance program for borrowers who are on unemployment and nothing else.  Also, lenders have in house programs for almost any situation.  At the end of the day, no matter what you income situation is, the most important thing to do is to speak with your lender.  If that is not working, contact Loan Modification 411, we can help.

MAC