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3 Common Mistakes when Writing Financial Hardship Letters


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TERMINOLOGY

Financial hardship letters are used by borrowers who want a loan modification. Such a letter outlines why you are unable to meet your financial obligation to the lender and what you can do about it. A loan modification will be denied if your letter isn't good. You really need to convince the lender why they should modify your mortgage, and you have to be able to do this all in a letter. You usually get only one chance to tell your story to the lender, and so many homeowners are requesting a loan modification that you need to be sure you standout from the rest. Avoid these common mistakes to ensure your letter is great and you get the loan modification you need.

1. Using False Information

If you use false information in your letter, your lender will know and you will immediately be denied. You will be asked to fill out an application that accompanies your letter. This application will outline your finances, how much money you make and how much debt you have. If you just went out and bought two new cars, your application will be denied. If you leave out the fact that you bought these cars, your lender will know since they will pull your credit report. So don't lie about your debts and be truthful about why you now can't pay your mortgage.

2. Having an Invalid Hardship

You need to check with your lender to see what they consider a hardship worthy of a loan modification. Qualifying hardships might include job loss, disability and illness. If your letter talks about how your car payment is high, your new boat needs repairs and your child's private school tuition is killing you, these will not be seen as valid hardships and you will not be approved. If this is your situation, then a loan modification may not be what you need. You probably need a financial counselor and some budgeting help. A valid hardship letter should discuss why you were once able to pay your mortgage and what life occurrences have made you now unable to pay.

3. Not Giving the Lender a Plan

The lender wants to know why you can't pay your full loan amount but also how you plan to pay the adjusted amount and how you will be better off in the future. You could discuss the fact that your hardship is due to a job loss, which should be temporary, or the fact that you have been ill but hope to return to work in six months. The lender wants to see how a loan modification will help you now but will also keep you from a foreclosure in the future. That's what the lender wants with the loan modification: to avoid foreclosure for their own sake.