31% & HAMP

HAMP works on the theory that a homeowner can devote 31% of their pre-tax income towards paying their mortgage payment. Under this program, if a bank modifies your loan the bank will bring you monthly mortgage payment to as close to 31% as possible. So what do you do if your monthly mortgage payment is less than 31% of you pre tax income and you're still struggling to pay?

1. Make sure your math is correct. Have you properly presented your financial situation? Did you say you bring in $1400 in rental income when in reality those two spare bedrooms are still vacant? Lately homeowners have been overestimating their income in order to appear more financially capable to their bank. In certain situations homeowners have flat out lied because they thought a lower salary would cause the bank to reject their modification application. Make sure you've given a true picture.

2. Check with the bank and determine what figures they are using for property taxes and homeowners insurance. In working with the 31% figure the bank will first take homeowners insurance and property taxes off the top. The remaining number is what they expect you to pay in principal and interest. If they think your property taxes are $300 a month when they are actually more like $700 a month then your principal and interest payment may be $400 a month too high. In these situations you'll need to get copies of all relevant bills. Keep in mind that in certain counties taxes may be increasing. If you can get documentation indicating such an increase provide them to the bank.

3. Look to other solutions. Ask the bank about an In-House modification. These modifications will not be bound by HAMP guidelines. Consider listing the property for sale (or short sale). The worst scenario is allowing the foreclosure to reach a judgment. Just about anything else is better in terms of a credit hit. You may even want to fight back against the bank in litigation. I would advise talking with a lawyer or housing counselor.

4. Sit down with your family and figure out if you're over-extended. Is everyone in your household of a reasonable age working? Is there a way to bring in additional rental income? Are you spending too much on vacations, personal property, entertainment, etc. ? If you intend to save your home you mortgage needs to become the priority. Talk with a lawyer experienced in foreclosure law and see what your options are.