Affordable Home Mortgage: How To Apply For the Affordable Home Plan
Taking advantage of President Obamas “Making Home Affordable” plan is easy. This plan will allow homeowners all over to get a home mortgage refinance or modification into a fixed rate 2% home loan. This stimulus plan will save millions of homeowners hundreds of dollars every single month. Here is how it all works:
The goal for borrowers, as they seek a HAMP Modification, is a Front-End Debt-to-Income of 31%. In plain English this ratio measures the percentage of monthly gross income that is consumed by debt and housing payments. This rate considers the value of consumer expenses compared to the borrower’s gross monthly income. This calculation begins with the reduction of mortgage payments by the investor to no more than 38%. The subsequent reductions by the lender, to get to the target of 31%, rest on the reduction of the borrower’s interest. If, however, the reduction reaches the floor of 2% without reaching 31%, the borrower may need to account for the difference with annual increases of the interest rate.
How to Apply for A Loan Modification Through CitiMortgage or CitiBank: To apply for a modification of a loan through CitiBank or CitiMortgage, homeowners should first contact their lender. They will then be required to fill out an application, which will detail their current expenses, income, and financial hardships. A borrower must prove to the lender that he or she is struggling to make their mortgage payments, yet will be able to afford the loan if it is modified. A lender will not give a modification to a homeowner that is likely to default on the new loan, as this will not be financially beneficial to either party.
If the modified interest rate is at or above the highest allowed by the original mortgage note, the modified interest rate will be the new note rate for the remaining loan term. If, however, the modified interest rate is below the maximum allowed rate in the note, the modified interest rate will be in effect for the first five years, followed by annual increases, until the interest rate reaches the interest rate cap, of up to 1% per year. The interest rate will be fixed once the it reaches the interest rate cap. If the Front-End Debt to Income target has not been reached, the term of the loan shall be extended up to 40 years
It should be noted that there is no requirement to use principal reduction under HAMP, but servicers may forgive principal to achieve the Front-End Debt-to-Income target. Consumers should recall that the goal is to reduce Front-End DTI to 31%. By forgiving principal, monthly payments (as part of the PITIA calculation) are drastically reduced, thus reducing to overall ratio.
