When you apply for a Wells Fargo loan modification one of the first things the bank will check is something called your debt ratio. This is a calculation that shows the bank how much of your monthly income is currently being spent on your mortgage expenses. The federal loan mod plan requires that you pass a certain debt ratio percentage in order to even be considered for a loan workout. Learn more about how this calculation works and how to compute your own ahead of time.
A Wells Fargo loan modification will be offered to homeowners who can prove that they are facing a legitimate financial hardship situation making their current mortgage payment unaffordable. There is a standard mathematical formula that the bank uses to determine who fits into the hardship guidelines and you must pass this calculation in order to qualify for a loan mod. Here is the basic guidelines for this loan mod debt ratio approval formula:
- Current mortgage expenses must equal greater than 31% of the household gross monthly income. Gross is the pay before any deductions – household expenses include the mortgage payment, property taxes, homeowners insurance and any HOA dues as applicable.
- You must be facing a financial hardship due to loss or reduction in income, increased expenses, excessive debt, or lack of cash reserves. This could be due to medical issues, increased mortgage payment, divorce, etc.
- Your monthly budget must prove in black and white that your current mortgage payment is unaffordable, but that if you loan is modified you will be able to afford the new lower mortgage payment.
- Your loan must be able to be modified to reach the new target payment of 31% of your gross income using the standard Waterfall Method of Modification – lower the interest rate, increase the loan term or lower the principal balance.
The Wells Fargo loan modification debt ratio requirement must be passed first before your application will be considered. If your current payment is less than 31% of your gross monthly income, then you may not be approved for a loan mod. Here is the basic calculation to help you figure out your own ratio:
- Add up your current mortgage payment (interest only payment, or principle & interest payment, or even neg am payment – whatever you are allowed to pay on your mortgage now), monthly property tax (take annual bill and divide by 12), monthly homeowners insurance (annual bill divided by 12), any HOA dues. Total all of these together for your total monthly housing expense.
- Divide the total housing expenses by your household gross monthly income.
- The result is your debt ratio.
If this calculation sounds too confusing, you can use a loan
modification software calculator that will do all the figuring for you automatically. The software will also show you what your new target payment could be, and the new loan terms should your application be approved. Once you input your specific income, expenses and bank balances, the results will be populated immediately, showing you if your are passing the guidelines and where you may need to adjust your budget to pass the debt ratio guidelines before submitting your application.
Make sure you prepare your Wells Fargo loan modification application correctly, use the #1 best selling resource for homeowners, The Complete Loan Modification Guide kit and Loan
Modification Software calculator. You will receive the handbook with step by step directions, forms, and the calculator will automatically show you a sample monthly budget to help you complete your forms correctly. Visit MyLoanModificationCenter.com today and get started.