The Most Important Data in a Loan Modification

Even though loan modifications are starting to be highly used, it’s fundamental to remember that no all mortgage modifications are approved by the bank. In determining whether to approve a loan modification, the bank will generally study the key factor in the decision process: the debt-to-income ratio.

The debt-to-income ratio is the fundamental factor in determining how successful an application will become because it is the best way for the lender to calculate if the person will be able to pay back the loan after the loan modification.

Before calling a lender, it is a good idea for the home owner to calculate the debt-to-income ratio. This is so because of two main reasons.

First, the ratio will give the owner a good idea of whether the home loan application will be approved. The majority of lending institutions prefer to look at a debt-to-ratio that isn’t above 50%. Some banks will go up to 55%. In some cases, and given the right conditions, a few lenders will be willing to go even higher.

Second, by finding out the ratio prior to calling the lending institution, the individual could see ways in which it might change the debt-to-income if the ratio is too high even after the approval of the loan modification.

For instance, in some cases owners could pay off some credit cards to decrease the debt-to-income ratio. In other cases, the home owner can give a very good excuse why he will be able to make the payments even with the elevated ratio.

A lot of banks request this data because they prefer to make sure they are not loosing their times with home owners who will stop paying the mortgage even after the home loan modification. The debt-to-income is a great indication of how well an owner will be able to repay the loan.

As a summary, always remember that you are looking for a ratio after the loan modification that is below 50-55%. By doing the calculation before talking to a lender, the owner might be much better prepared to present the case and the chances of having the loan modification approved go up dramatically.