Mortgage Loan Modification Assistance – Why Your Lender May Require a Good Faith Deposit

Mortgage Loan Modification Assistance – Why Your Lender May Require a Good Faith Deposit

Homeowners who have missed 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 ask for a good faith deposit. You should be aware of this possibility because if you are unable to provide what your bank is asking for, your loan modification application may be denied. What is it and why might your bank want it?

A bona fide mortgage loan modification deposit is often required by lenders when the borrower has not made any home loan payments for many months. The goodwill deposit may be equal to a portion of the delinquent payments, and the bank will request this amount as a condition of completing 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 many months. You apply for a mortgage loan modification and prepare your financial statements detailing your income and expenses. These forms show your lender that even though 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 credit. So if you haven’t made any payments for a few months, you should still have reserves left, right?

HAMP guidelines require all loan modifications to include an escrow or forfeiture account for property taxes and homeowner’s insurance. This means that every month you pay 1/2 of your annual tax bill and insurance bill to your lender. The bank then holds that 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 insured.

If your taxes are due soon and there isn’t enough money in your current impound account, or if you haven’t had one before, you may need to deposit an amount to start the impound account. This is another reason why you may need to have some money set aside to finalize your mortgage loan modification. While back taxes can be paid for you and then that amount added to your loan balance, the impounded account may require some upfront funds from you. Don’t let this be the reason you can’t change your credit!

Unfortunately, many homeowners spend the money they would normally put towards paying off their mortgage. Sometimes that money that would have gone toward a house payment is used for other debts. But your bank wants to know that your home loan is your priority — that’s why it’s so important to keep some of the money that would go toward a mortgage payment. Being able to pay a good faith deposit to start your mortgage loan modification could be the difference between helping and losing your home. If your lender asks for 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 good faith deposit if your bank asks for it.

The federal program, HAMP, usually doesn’t 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 that is capped at 31% of your gross monthly income. This is a very good application plan and as it contains standard approval guidelines, we recommend that you properly prepare your application to meet these 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 own application by using the Loan Mod Quick App software program – it actually does all the calculations for you, so you can be confident with your application. Whether you’re applying for HAMP or some other loan program with your lender, be sure to take a few hours to prepare your documents properly for the best chance of approval.

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