One of the most important parts of completing your loan modification forms is calculating your debt ratio.  All lenders have approval guidelines that include an acceptable income to debt ratio that you must meet in order to be approved.  Obama’s loan modification plan has a standard debt ratio criteria as well-this is very important to know and understand.  This may sound complicated, but you can easily learn to figure your own ratio by following just a few simple steps.  Remember, this is a critical part of the loan workout approval, so you need to know about this.

Acceptable debt to income ratio is determined by each lender and can vary slightly for their in-house loan workout plans.  However, most banks like to see that your ratio is under 45%.  This means that your total housing expense-including loan payment, taxes, insurance and homeowners dues does not exceed 45% of your households gross monthly income.  The new Obama loan modification plan aims to lower payments so that they equal 31% debt ratio-and the Federal government is sharing in the costs incurred to reach that low percentage.  You should always request the Obama Home Affordable Plan first-that program has the best terms and is the easiest to qualify for.  Learn the approval guidelines in Chapter 3 of the best selling handbook for homeowners, The Complete Loan Modification Guide.

Once you know how to calculate your debt ratio, you can determine your new target payment and discover what it will take to reach that figure.  For example, you may find that by lowering your interest rate to 2% and extending your loan term to 40 years you can arrive at the acceptable ratio.  Then you can complete your loan modification forms correctly to reflect that figure.  Again, this is easy to do when you understand the steps to follow – find your target payment and be sure it fits your budget as well as your lenders guidelines for approval.  The Obama loan modification plan aims for a new target payment that is just 31% of your gross income-this includes the cost of homeowners insurance, property taxes and any homeowners dues.  You can determine your ideal payment by using this 31% figure to help you negotiate effectively.  You can use the simple payment tables in Chapter 10 of the #1 resource for homeowners, The Complete Loan Modification Guide.

Your loan modification forms will demonstrate your ability to meet the debt ratio guidelines.  When you complete your income and expense form, you can clearly show that the new target payment meets the lenders requirements, and get your application approved much faster.  It’s not rocket science, just simple math-calculate, adjust your numbers, then complete the application accordingly.  Take the time to learn this important part of a successful loan modification application and you will have the edge you need to get the results you want.