Home Loan Modification Help: Why Your Lender May Request a Bona Fide Deposit

Homeowners who have missed many mortgage payments and want to apply for a loan modification should be prepared to make a down payment to their lender. In some cases, when you apply for a home loan modification, your lender may request a good faith deposit. You should be aware of this possibility, because if you are not able to provide what your bank requests, your loan modification request could be denied. What is this and why might your bank want it?

Lenders often request a good faith deposit for a mortgage loan modification when a borrower has not made any mortgage loan payments for many months. A good faith deposit can be equal to a portion of the past due payments, and the bank will request that amount as a condition of completing the loan modification. When and why will the lender ask for this?

Let’s say you fall behind on your payments and pay nothing for many months. You apply for a home loan modification and prepare your financial statements detailing your income and expenses. These forms show your lender that even though you can’t afford your current high mortgage payment, you have enough income to pay your bills and can afford a new, lower modified mortgage payment. This is how you convince the bank that you are a good candidate for a loan. So if you haven’t made any payments for a few months, you should still have some reserves, right?

HAMP guidelines require that all loan modification terms include an escrow or lien account for property taxes and homeowners insurance. This means that each month you pay half 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 make sure your collateral is always secured.

If your taxes are due soon and there isn’t enough money in your current impound account, or if you didn’t have one before, you may need to deposit an amount to start the impound account. This is another reason why you may need to set aside some money to finish your home loan modification. While back taxes can be paid for you and then that amount is added to your loan balance, a lien account may require some funds up front on your part. That this is not a reason for not being able to modify your loan!

Unfortunately, many homeowners spend money that would normally go towards paying their mortgage. Sometimes that money that would have gone towards a house payment is used for other debts. But your bank wants to know that your home loan is your priority, which is why it’s so important to keep some of the money that would have gone toward your mortgage payment. Being able to pay a good faith deposit to start your home loan modification could be the difference between helping and losing your home. If your lender requests a bona fide deposit, you must be able to pay it or have a very good reason for not having money available and be able to document it. Try to set aside some money so that you can pay a good faith deposit if your bank asks for it.

The federal program, HAMP, usually does not require a large down payment. Any missed payments can be added to the loan balance and included in the new modified payments. Obama’s plan offers a very low affordable payment that aims to match 31% of your gross monthly income. This is a very good plan to apply for, and since it comes with standard approval guidelines, it is recommended that you prepare your application properly to meet those guidelines.

There is actually a 4-step formula that banks use to determine if a homeowner qualifies for the HAMP plan. You can take the frustration and confusion out of preparing your own application by using the Loan Mod Quick App software program; it actually does all the math for you so you can be sure of your application. Whether you apply for HAMP or some other loan resolution program with your lender, be sure to take a few hours to prepare your paperwork correctly to give yourself the best chance of approval.

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