Mortgage Modification: do you qualify?

If you cut through all the complicated qualifications and regulations for the administration’s mortgage modification and foreclosure prevention programs, there is one number at the center of everything.  If you understand this number and how it is used, then you will have a real leg up on understanding whether or not you qualify — and whether or not you want to qualify —  for mortgage modification.

That number is 31% — roughly one-third.

The fact is that the various mortgage modification and foreclosure prevention programs assume you can pay 31% of your income toward your mortgage.  That is almost one-third of your income.  Not a small number.

If your mortgage payments are not more than 31% of your gross income, they do not think you need relief.  And if you do qualify for relief they will adjust your mortgage payments until they are lowered to 31% of your income.  Usually they will not go lower.

Let’s say your income is $50,000.  Your mortgage payment would have to be more than $15,500 a year, or almost $1,300 a month for you to qualify for mortgage modification.

Let’s suppose your income is $50,000 and your mortgage is $20,000 (or about to go to $20,000 after variable rate adjustment).  You would qualify on this basic provision, and if you qualified in other areas AND all went well, the lender would use some combination of interest rate reduction (not below 2%) and principle forgiveness to get your payment down to less than $1,300 a month.

This is what you can hope for.  If you know that up front, you need to decide if that is OK with you.  You may think that you cannot pay 31% of your income for your mortgage, and if so, there is probably little reason for you to start down the road to mortgage modification.

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