Homeowners who have missed several mortgage payments and wish to apply for a loan modification need to be prepared to make an initial payment to their lender. In some cases, your lender may ask for a good faith deposit when you apply for a mortgage loan modification. You need to be aware of this possibility, because if you are not able to provide what your bank demands, your loan modification application may get rejected. What is it and why does your bank want it?
A mortgage loan modification good faith deposit is often requested by lenders when a borrower has not made any home loan payments for several months. The goodwill deposit may be equal to a portion of past due payments and the bank will ask for that amount as a condition of completing the loan modification. When and why would the lender ask for it?
Let’s say you fall behind on your payments and don’t pay anything for several months. You apply for a mortgage loan modification and prepare your financial statement detailing your income and expenses. These forms show your lender that while you can’t afford the current high mortgage payment, you have enough income coming in to pay your bills and can afford a new, lower modified mortgage payment. This way you convince the bank that you are a good candidate for loan workout. So if you haven’t made any payments for a few months, you should still have some reserve left, right?
HAMP guidelines require that all loan modification terms include an escrow or forfeiture account for property taxes and homeowners 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 this amount in reserve until it is 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 you don’t have enough money in your current impound account, or if you didn’t have one before, you may need to deposit an amount to start an impound account. This is another reason why you may need to set aside some money to finalize your mortgage loan modification. While the taxes can be paid for you and that amount can then be added to your loan balance, a forfeited account may require some upfront funding from you. Don’t let this be the reason for not being able to modify your loan!
Unfortunately, many homeowners end up spending the money they would normally put into their mortgage payments. Sometimes, the money that used to go towards the home payment is used for other loans. But your bank wants to know that your home loan is your priority—that’s why it’s so important to put some money on hold that would go towards the mortgage payment. Being able to pay a good faith deposit to start your mortgage loan modification could be the difference between getting help and losing your home. If your lender asks for a goodwill deposit, you must be able to pay it, or you must have a very good reason for not having any funds available and be able to document it. Try putting 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 upfront payment. Any missed payments can be added to the loan balance and included in the new revised payments. The Obama plan offers very low affordable payments that are targeted as low as 31% of your gross monthly income. This is a very good plan to apply for, and since it includes standard approval guidelines, it is recommended that you structure your application properly to meet those guidelines.
There is actually a 4 step formula that banks use to determine if a homeowner is eligible for the HAMP plan. You can take out the frustration and confusion 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 sure of your application. Whether you apply for HAMP or another loan workout program with your lender, make sure you take a few hours to prepare your paperwork correctly for the best chance of approval.