You’ve made the painful decision to let your house go and start over. The easiest thing would be to just let the bank go through its process and foreclose on your house. But you don’t want a foreclosure on your credit report. So instead you decide to try to sell your house as a short sale. You’ll market your home and agree on a price with a buyer, subject to your lender agreeing to take less than the loan balance as payment in full. But it’s not that simple. The mortgage company is still hoping that you can make the mortgage payments. In order to convince them that their only other choice is foreclosure, you need to write a convincing hardship letter.
Lenders know which kinds of things make loans default. If you claim to have a financial hardship, they will want to know specifically what the problem is. And they’ll want to verify it. Here are some of the more common financial hardships that tell lenders that a loan is not going to succeed.
Your payments have increased to a level that’s no longer affordable for you. If you were one of the many home buyers who got an adjustable rate loan, you probably qualified based on the initial payment amount. If your income didn’t increase as much as the payment did, it’s likely that the new payment amount isn’t affordable to you now. Back then many borrowers thought they would be able to refinance before the payments went up. Unfortunately with values falling, the home’s value often falls short of what’s necessary for a refinance. Just like when you first applied for the loan, the bank will want to verify your current income. If your ratios would allow you to qualify for the current monthly payment, they won’t let you out of it.
Your income has fallen. Many homeowners have lost their jobs or taken pay cuts, making it impossible to make the mortgage payment each month. This is true whether you work as an employee or you’re your own business. Lenders understand that lack of income means that you cannot and will not continue to make mortgage payments. The money just isn’t there.
Your expenses have increased. Have property taxes risen so much that your home is no longer affordable? Do you have big medical bills due to an unexpected illness? Even if the cause was not completely out of your control, increase debt levels make it difficult to pay the mortgage payment.
Divorce or death of a spouse. Most families qualify for a home loan based on two salaries. If there’s only one income now, you won’t be able to afford the same payment as before. Lenders recognize that in divorces, both people and their incomes still exist, but they won’t both be living in the house. The same incomes now must be used to support two separate residences.
Significant damage to the home. Of course the bank required that you have insurance on your home, but sometimes insurance doesn’t cover all of the damage in the case of a fire, flood or earthquake. If you’ve been stuck with a sizeable expense due to property damage, this may constitute hardship.
Relocation. If you have to move for your job or for military service, the mortgage company understands that you won’t be able to keep up the payments on this house while paying for housing in the new location.
If home values had not fallen so much, homeowners with financial hardship would simply sell their homes and take whatever loss that meant. In the current market, homeowners who owe more on their mortgages than their homes are worth just don’t have that option. If you can show the lender that you have a valid financial hardship, they may approve a short sale, which will allow you to get on with your life without the credit disaster of a foreclosure.
When you’re back on your feet and ready to buy a home again, you can apply for a home loan mortgage online. Just look at these beautiful San Diego new homes and you’ll start thinking about how to shore up your credit quickly.