There are many homeowners in the United States who are struggling to make their mortgage payments. One option available to people is a government program that offers borrowers the opportunity to modify their current mortgages to reduce their interest rates and, in some cases, forgive part of the outstanding principal balance. Another option is to sell the home in a short sale in which the lender is asked to agree to accept less than the principal balance owed on a mortgage. Under either option, banks require a hardship letter as part of the process.
A well-written hardship letter can help you to avoid foreclosure and obtain a fresh start. However, poorly written letters can cause a lender to deny a borrower’s request for a loan modification or for a short sale. The following three tips will help to make your hardship letter stand out and lead to a favorable response from your lender.
Tip 1: Don’t harp on the obvious.
Writing a hardship letter that explains how the value of your home has declined – and that your mortgage balance exceeds the value of your home – is not going to convince your lender to accept less than the full amount you owe when you sell the home. Equally ineffective is writing a hardship letter that asks a lender to modify your loan to reduce your monthly payments simply because other people you know got them from their banks.
Instead, explain how your financial circumstances have changed since you took out the mortgage. Examples of situations that banks might consider as being hardships include:
- Loss of a job or a reduction in your income
- Serious illness or physical injury that resulted in lost income or mounting medical bills
- The company you work for is relocating and you will lose your job if you do not sell your home and move
- Divorce, separation, or annulment
- Death of a spouse
Interest rates have been relatively low in recent years, but if rates begin to rise, homeowners with adjustable-rate mortgages might use that as a factor in their hardship letters. Depending on the terms of the original mortgage, higher interest rates could lead to unaffordable monthly payments.
Tip 2: Keep it concise.
The person reading your hardship letter doesn’t want to receive a novel. The letter should be concise, stating what you are requesting, followed by the hardships you are experiencing. Each hardship should receive its own short paragraph (up to four sentences) to keep things brief and to the point.
Tip 3: Don’t beat around the bush.
Be clear about what you’re asking for in the hardship letter. The purpose of the letter is to show your bank that you are on the brink of total financial collapse, so you want it to honestly reflect the dire situation you are experiencing. Forget the thesaurus and the fancy words, and write it using your own language. Write it so it sounds like you are talking directly to your banker.
Along the same lines as being concise, you need to be straightforward about what you are requesting. For example, you might state that you need a reduced interest rate or a loan modification to make making your monthly payments possible.
Banks also want to read that you have tried to resolve your financial difficulties before coming to them for help. If your hardship is unemployment, give your lender the details about your efforts to find a new job. For instance, someone who went back to school to train for a new career after losing a job should explain the circumstances in the letter.
Tip 4: Include supporting documentation.
Along with your letter, you should attach the appropriate documentation to support your request. If your hardship is a divorce, send a copy of the divorce order. Or, if it’s a medical issue, you may send copies of your medical bills.
Tip 5: Modification of a loan or a short sale should not be your first option.
If you are experiencing financial troubles, you want to explore all of the options that are available to you to resolve them. Loan modifications and short sales are only two options, but there could be more depending on your circumstances. A consultation with an attorney might be helpful to learn about your options and get help with your hardship letter.