How to Write an Effective Hardship Letter for Loan Modification

If you’re struggling to make your mortgage payments, writing a hardship letter is a critical step when requesting a loan modification from your lender This comprehensive guide will walk you through how to craft an effective hardship letter that clearly explains your financial situation and convinces your lender to modify your loan terms.

What is a Hardship Letter for Loan Modification?

A hardship letter is a personal letter you write to your mortgage lender to explain the circumstances causing your financial hardship and inability to pay your mortgage as agreed upon.

The letter acts as an official request for a loan modification payment plan or other mortgage relief options to avoid foreclosure. It provides vital context about your situation and shows the lender you are committed to overcoming your challenges.

An effective letter demonstrates you’ve thought through the options and have a feasible plan to get your finances back on track if the lender works with you.

Key Components of an Effective Hardship Letter

Every hardship letter is unique, but these elements form the foundation of a letter that gets results:

• Your personal and loan details – This identifies you and your case to the lender. Include your full name, loan account number, property address, and contact information.

• Description of the hardship – Explain your situation clearly and honestly. Provide dates, facts, and specific life events like job loss, illness, divorce, etc. that caused your financial distress.

• Request for loan modification – Ask specifically for the assistance you need, whether it’s lower payments, reduced interest rate, loan term extension, forbearance, etc.

• Financial details – Share numbers that give the full picture, including income, expenses, assets, debts, loss of income, hardship impacts, etc.

• Supporting documentation – Reference any proof you’re including, like pay stubs, medical bills, divorce documents, etc. This adds credibility.

• Expression of commitment – Show you’re dedicated to overcoming this hurdle and getting your finances back on track.

• Thank you and appreciation – Politely thank the lender for their time and consideration.

Step-by-Step Guide to Writing Your Hardship Letter

Follow this blueprint when drafting your hardship letter for the best results:

1. Introduce Yourself

Start by formally identifying yourself and your mortgage account. This helps the lender connect the dots.

• Full Name
• Loan Account Number
• Property Address

Example:

“I, John Smith, am writing regarding the mortgage loan #123456789 connected to my home at 123 Main St.”

2. Explain the Hardship

Provide details about the circumstances causing your inability to pay. Be clear, honest, and straightforward. Only share pertinent facts and life events leading to the hardship.

• Job loss, reduced income, or hours cut
• Loss of a spouse or family member, especially primary earner
• Unanticipated medical bills or long-term illness
• Divorce or separation
• Necessary relocation or moving expenses
• Higher monthly expenses like childcare or transportation
• Other major unexpected costs

3. Make Your Modification Request

Specify the type of mortgage relief you need given your situation. Do you need:

• Lower monthly payments
• Interest rate reduction
• Loan term extension
• Different payment plan
• Temporary payment pause

Example: “I am requesting a loan modification to extend my repayment term and lower my monthly mortgage payment to an affordable amount based on my current financial situation.”

4. Share Financial Details

Provide numbers and specifics about your income, expenses, and debts to paint the full financial picture. This shows how the hardship impacted your bottom line.

• Current household income
• Monthly mortgage payment before and after hardship
• Monthly expenses like food, utilities, medical, childcare etc.
• Other existing debts and obligations
• Assets or savings you can tap if necessary

5. Note Supporting Documents

Let the lender know you’re including evidence to back up the hardship you described. Common examples:

• Pay stubs, tax returns, bank statements showing income loss
• Medical bills or expenses
• Divorce or separation paperwork
• Any other relevant financial records

Example: “Please find the following documents attached: pay stubs, medical receipts, credit card statements”.

6. Express Your Commitment

Show you are dedicated to resolving the issues at hand. Communicate that you want to get your finances back on solid ground and retain your home.

If the lender works with you, assure them you will uphold the modified payment plan or terms. Convey the hardship is temporary and you have a plan to recover.

7. Thank the Lender

Politely thank the lender for reviewing your request. Express appreciation for their time and consideration.

Example: “Thank you in advance for taking the time to consider my circumstances and request. I look forward to your response.”

Tips to Make Your Hardship Letter More Effective

Follow these tips when drafting your letter to maximize effectiveness:

• Keep it brief – One page is ideal. Lenders have limited time. Be concise.

• Be honest – Clearly explain the true hardship circumstances. Dishonesty damages credibility.

• Show urgency – Stress the time sensitivity and necessity of loan modification to avoid foreclosure.

• Write professionally – Typographical or grammatical errors undermine seriousness. Proofread carefully.

• Follow up – Call to confirm receipt of letter and next steps for response. Don’t just submit and wait.

• Meet deadlines – Submit your letter and documents by any date specified by your lender for best results.

• Keep copies – Retain your letter and supporting documents for your records if needed later.

Hardship Letter Template and Example

Use this sample hardship letter as a template when drafting your own:

[Your Name]
[Your Address]
[City, State, Zip]

[Date]

[Lender Name]
[Lender’s Address]
[City, State Zip]

Re: Hardship letter for [loan account number]

Dear [Lender],

I am writing regarding the mortgage for my home at [your address] with loan account number [loan account number]. Due to [explain hardship circumstances], I am unable to make my regular monthly mortgage payments and am requesting a loan modification.

[Expand on the events leading to financial hardship]. These circumstances have severely impacted my finances and ability to pay my $X monthly mortgage payment. My income has been reduced [explain how much and why]. I am no longer able to afford my mortgage payment, along with other monthly expenses.

I am requesting [explain modification request, like lower interest rate, extended repayment term, lower monthly payments, etc.] on my mortgage to avoid foreclosure. If approved for a loan modification, I am confident I can meet my financial obligations going forward.

I appreciate you taking the time to consider my circumstances and look forward to hearing back regarding a loan modification or alternative solution so I can get back on solid financial ground. Please contact me at [your phone] or [your email] if you have any other questions.

Sincerely,
[Your name]

Alternatives to Hardship Letters

If you don’t feel a hardship letter is the most effective approach for your situation, consider these other options to request mortgage relief from your lender:

• Call your lender – Discuss the hardship over the phone and directly ask for mortgage assistance. Less formal but starts the conversation.

• Email your lender – Emailing allows you to provide details in writing and easily attach documents. Faster than traditional mail.

• Apply for assistance online – Many lenders have hardship assistance applications on their websites for a smoother process.

• Speak to a housing counselor – Getting guidance from a neutral third-party counselor could strengthen your request.

• Hire an attorney – Mortgage attorneys and foreclosure defense lawyers can negotiate with lenders on your behalf.

The most important thing is starting the conversation with your lender as soon as you anticipate problems making payments. This opens the door to finding an alternative solution and avoiding foreclosure. With an effective hardship letter or other request, you can likely obtain a loan modification or other arrangement that reduces your payments to a manageable amount.