Can I Get a Mortgage Modification Due to Divorce?
Divorce is usually difficult, and it often creates a financial hardship for people. Divorce proceedings can cause assets to be frozen until they are properly divided among the two parties. This can lead to falling behind on payments, such as a mortgages, because neither party wants to pay for an asset that might not be awarded to him. A divorce can also make paying a mortgage difficult with the addition of alimony payments or child support. Going through a divorce doesn’t have to mean losing your house, though. If you’re having a hard time making your monthly mortgage payment due to a divorce, a mortgage loan modification may help you keep your home.
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Goals of a Mortgage Modification
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There are two key goals when modifying a mortgage payment. For the borrower, the purpose is to create a payment that’s more affordable. For the lender, it’s to collect all or as much as possible of the original loan amount. An affordable payment is usually defined as a targeted percentage of a borrower’s gross monthly income. Many lenders shoot for a payment of 38 percent of a person’s gross monthly income, according to Bankrate, but acceptable numbers can range from 31 to 41 percent.
Types of Mortgage Modification
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The types of mortgage modifications vary by lender, but the most common include a temporary or permanent reduction, an extended payback period (typically 40 years), and deferral of principal. Regardless of the type of modification you seek, the modified loan payment must be sufficient to pay off the mortgage.
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Applying for a Mortgage Modification
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The first step in getting your mortgage modified is to call your lender and explain your situation. Your lender will likely request proof of your financial hardship, in this case your divorce, in the form of a hardship letter. A hardship letter explains the circumstances that led to your need for a mortgage modification. Your letter should explain how your divorce has impacted your ability to pay the mortgage. It can include information about any alimony and child support payments you're making, divorce-related legal expenses, and whether loss of your spouse's income has affected your financial situation. In addition to the hardship letter, the lender will also request copies of your most recent paycheck stub and bank statements. All this information helps the lender determine whether you qualify for a mortgage modification, and whether you’re capable of making your mortgage payments if you’re granted a modification. Some lenders will extend a mortgage loan modification offer, pending verification of income, during the phone call, but most people have to wait for the lender to analyze their situation and decide whether the modification is necessary. The time this process takes varies by lender, but you can expedite the process by providing the information a lender requests as soon as possible. It’s important to provide inaccurate information about your financial situation because inaccuracies can delay the approval process.
Mortgage Modification and Credit
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A mortgage modification shouldn’t be viewed as the only option for a homeowner who is trying to avoid foreclosure. If your divorce is not creating a significant strain on your finances, it’s probably not the right option for you. Many mortgage lenders will not consider modifying a mortgage unless the borrower has missed a payment or payments, but skipping a payment shouldn’t be done intentionally. One missed payment and any subsequent missed payments are reported to the three major credit reporting agencies. Your payment history accounts for approximately 35 percent of your credit score, which means one missed payment can lower your score. Your credit score plays a significant role in your ability to obtain credit.
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References
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