A hardship letter is always required by your lender/creditor when homeowners/consumers are having financial difficulties because of life-altering complexities that almost everyone has suffered. If you are applying for a loan modification or credit extension, your lender/creditor will request a hardship letter to understand your financial situation and what has caused your hardship. Most lenders and creditors are familiar with reasons such as the ones listed below:
Most lenders will consider any one of the reasons listed above when they have ran your credit report and considered all other financial circumstances in your life. The key to approval is to be honest and truthful when providing documentation, because false statements or documents could result in a denial of a loan modification or credit extension.
Unfortunately most lenders are overwhelmed with loan modifications and credit extensions, therefore keep your letter to 1 page.
A hardship letter should answer 3 questions:
- What caused the hardship?
- When will the hardship end?
- How do you plan to repay the past debt?
Be very clear about what has caused the hardship, but more importantly, your lender/creditor will want to know if the hardship has ended or when will it end. Lenders want to see an income that can support the mortgage payments that were originally made. A loan modification may reduce your payments slightly but never drastically unless coupled with other programs such as principal reductions, forbearance agreements, or reduced interest rates.
Creditors are willing to defer payments a few months until the borrower can afford to make payments. Sometimes they will negotiate by setting small amounts of payments over an extended period of time.
Examples of hardship letters are listed here:
REASON FOR HARDSHIP
Date: August XX, 20XX
Name: John and Jane Homeowner
Address: 2432 Hardship Lane, Anywhere, Town,
Loan No.: 34443XXXXX
To Whom It May Concern:
We are writing this letter to request a loan modification to extend our loan. We have had a financial hardship due to job loss and my wife’s illness.
I have been working at (JobJob) for the past 10 years and was laid off for 10 months due to employee cutbacks. During that time my wife became ill with (describe illness) and was unemployed for 1 year and 3 months. We have 3 children that are 9, 7, and 5. Our financial struggle has taken a toll on our family.
Unfortunately, we became desperate to make payments with limited income and began to use our credit cards to make up the difference. Our accumulated debt threw us even farther behind. We refinanced our house but that only increased our mortgage payments and the equity in our property is no longer there because of the economic real estate downfall.
This financial hardship occurred 2.5 years ago, and since that time we were able to get back on our feet with gainful employment and my wife has since recovered. We have submitted paystubs, bank statements and filled out the application for a loan modification. I am sure you will find that we are able to make payments that will be able to keep our home. However, we are requesting a lower mortgage payment because of the option arm loan that has since become due and payable.
Our attorney advised us to file bankruptcy, but we prefer to avoid further destruction to our credit. We would like to keep our home and stabilize our family’s life. Therefore, we ask that you give our situation special attention realizing the fact that we are in a stable and comfortable position to afford mortgage payments in line with the current equity in our home.
Thanking you in advance for your time and attention.
John and Jane Homeowner