RoxannePanic is a common emotion that arises when you can’t meet your mortgage. While it’s perfectly understandable to feel this rush of anxiety when times get tough, seeking a solution is a better avenue for getting back on your feet.
That solution for some can be a simple as writing a hardship letter. We’ll reveal what a hardship letter is, when you can write one, and questions it should answer.
What Is a Hardship Letter?
In the home loan arena, a hardship letter describes the financial setbacks a homeowner has experienced that makes them unable to pay their mortgage.
Unfortunately, simply stating that you cannot pay your mortgage on time isn’t enough for most lenders. They want to know that the hardship you experienced is a legitimate one. They also want to know how that hardship specifically affected your ability to pay.
Examples of Bona Fide Financial Hardships
Not all hardships are created equal in the eyes of a lender. Here are some examples of genuine hardships that could convince a lender to decide in your favor:
- Adoption of a new child
- Business failure
- Business suffering during an economic downturn
- Death by a family member responsible for making the mortgage payment
- Drug or alcohol dependency of one of the wage earners in the household (as long as they’re currently seeking treatment)
- Excessive debt accumulation
- Gambling addiction by one of the wage earners in the household (as long as they’re currently seeking treatment)
- Imprisonment of one of the wage earners in the household
- Income reduction due to reduced wages or a loss of overtime
- Increase in the interest rate on an adjustable-rate mortgage (known as payment shock)
- Increased expense due to a newborn child/maternity leave
- Injury or illness that results in increased medical expenses, reduced income, or both
- Loss of employment via a reduction in force or a layoff
- Military duty
- Relocation of employment
- Separation or divorce
Questions Your Hardship Letter Must Address
While the hardship experienced is vital in your lender’s decision, so are other factors. When writing your letter, you want to provide every detail you can to explain your situation. The more details you include, the easier it is for the lender to understand why you cannot pay.
To give your hardship letter some structure, include answers to the following questions:
- On what specific date (or range of dates) did the hardship occur?
- What event caused the hardship that made it impossible to meet your monthly mortgage payment?
- Is the hardship permanent or temporary? (Death, divorce, or separation could be considered permanent. Short-term illness, injury, or a job layoff could be considered temporary.)
- Can you afford to make a payment? If so, how much?
- Are you behind on your mortgage payments? If so, how far behind are you? (Include the months behind and a total dollar amount, if possible.)
- What are you doing to address the hardship to get back on your feet financially? (Trying to find a new job/second income, selling assets, or budgeting are examples.)
- Do you want to keep your home? (If you do not, the lender may reject any request to modify your loan.)
The Main Thing to Keep in Mind
Remember why you’re writing the hardship letter. Sure, it’s to make your payment agreement more manageable during a tough time. But think of it in terms of the lender.
Their main goal is to get paid. If you show that you’re doing everything in your power to fix your finances and pay them, they’ll be more likely to accept your request. If not, and you exhibit no desire to keep your home, any attempt to modify the loan may be nullified.
