Proving Income When Seeking a Loan Modification

Many clients contact our office wanting to know whether or not a loan modification is possible.  One of the best ways to evaluate your chances of success is to look at the amount of income coming into your household every month.  Why is this?  When pursuing a loan modification either through the Home Affordable Modification Program (HAMP) or an in-house loan modification your loan servicer will look at your monthly income to determine eligibility for modification.

What Counts as Income?

Each servicer has slightly different guidelines, but here is a list of income sources that are generally accepted: wage or salary, self-employment income, bonuses, commissions, housing allowances, tips, overtime, social security, disability, death benefits, pensions, public/ adoption assistance, unemployment benefits, rental income either from the property or from other properties, alimony, separation maintenance or child support income, and non-borrower household income.

Documentation of Income

Documentation is necessary for each- when evaluating a client for a successful loan modification, a servicer will need to verify income amounts in order to put the loan under review.

Wage and salary information must be documented with copies of pay stubs from the last 90 days indicating year to date earnings.  Self-employment income must be documented via a quarterly or year-to-date profit and loss statement.  Some servicers will require an accountant to prepare the statements, while others may ask for monthly profit and loss statements as well.  Bonuses, commissions, housing allowances, tips, and overtime usually require reliable third party documentation describing the nature of the income.  To be safe I always recommend depositing the funds into a bank account, and if possible including a copy of the cancelled check.  For benefits income (social security, food stamps, unemployment, etc.) servicers usually ask for some form of benefits letter along with notations on bank statements.

Rental Income

Rental income can be tricky- documentation on Schedule E of your tax returns is a good start, but most servicers will want to see a current lease agreement and bank statements/cancelled checks.  If a renter pays in cash, I recommend depositing the funds in a consistent manner and having the renter sign a rental contribution letter.

Family Support Income

Similarly, any income arising from domestic support obligations will require a copy of the divorce decree/separation agreement and evidence of payment through deposit advises or notations on bank statements.

Income of Household Members Not Named on the Loan

Lastly, non-borrower household income is verified in the same manner as employment income.  The non-borrower will usually have to sign a letter stating how much they contribute to the home on a monthly basis, and authorize the servicer to pull their credit report.

By including many different types of income, your loan servicer will get a more accurate reflection of your household finances and be able to make a more informed decision regarding a modification of your loan.