Homeowners can experience events over which they have no control such as injury, illness, divorce, death, layoff, new or worsening disability, incarceration and more. This may result in financial hardship, making payments on bills, mortgages and other debts a challenge. If a homeowner begins to miss mortgage payments, they might need to write a financial hardship letter to their lender/loan servicer to get those payments back on track and prevent foreclosure. In this blog, I’ll describe the components of an effective hardship letter.
Facing financial hardship and struggling to make loan payments? A hardship letter, also known as a financial hardship letter, is an important tool to request loan modification from your lender. This article will provide tips and a sample hardship letter template to help you write an effective letter.
What is a Hardship Letter for Loan Modification?
A hardship letter explains your financial situation to the lender and requests adjustment of loan terms to make payments more affordable, It demonstrates how circumstances beyond your control have made it difficult for you to meet your loan obligations
The letter should be clear, concise and provide evidence of financial hardship. It can help the lender understand your situation better and encourage them to work with you.
When Do You Need a Hardship Letter?
A hardship letter is required in situations such as
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You are struggling to make mortgage payments and request a loan modification. This may include reducing the interest rate, extending the repayment period, reducing the principal balance, etc.
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You are facing difficulties repaying your auto loan, student loan, credit card debt, or other types of loans. You want to negotiate reduced or alternate payment arrangements.
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There has been a significant change in your financial circumstances due to events like job loss, reduced income, divorce, medical emergency, disability, etc.
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You had an unusual or temporary expense that made loan repayment difficult for a few months.
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Natural disasters like earthquakes, hurricanes, or floods have caused property damage or loss of livelihood.
Essentially, the lender needs to understand why you cannot fulfill the original loan terms so they can consider alternative arrangements.
How to Write an Effective Hardship Letter?
Follow these tips to draft a compelling hardship letter:
1. State the purpose clearly
Begin the letter by stating its purpose explicitly, like – “I am requesting a loan modification due to a job loss” or “I want to lower my mortgage payments through a loan modification.”
2. Provide background information
Give details like – type of loan, original loan amount, monthly payments, date of origination, and account number. This helps the lender identify your case.
3. Explain the financial hardship
Describe your situation in detail and provide evidence like – job termination letter, pay stubs, medical bills, divorce decree, etc. Explain how it has impacted your ability to repay the loan.
4. Mention steps taken
Show how you have made efforts to resolve the problem, like seeking new employment, reducing expenses, using savings, etc. This shows you are acting in good faith.
5. Suggest solutions
Propose specific ways the lender can modify the loan terms to make repayment feasible, such as – lower interest rate, longer repayment term, reduced principal, alternate payment plan, etc.
6. Communicate your commitment
Emphasize that you want to repay this debt and will resume normal payments if the lender accommodates your request. This reassures them of your intent.
7. Be sincere and respectful
Use a sincere, honest tone and avoid aggressive language. Thank the lender for their time and consideration.
8. Include contact information
Provide your phone number and email address so the lender can contact you easily to discuss options.
9. Attach evidence
Include documents like pay stubs, termination notice, medical certificates, bills, etc. to support your claims of financial hardship.
Sample Hardship Letter Template
You can use this sample letter template as a guide to write your own hardship letter for loan modification:
Date
Name of Lender
Address
Regarding: Request for mortgage loan modification for {property address}
Dear Sir/Madam,
I am writing this hardship letter to request a modification on my home loan. I have been a loyal customer of your bank for X years. I currently have a $XXX mortgage loan originating on date for the purchase of my house located at address.
Unfortunately, due to loss of job/reduced income/medical emergency/divorce/unexpected expenses, I am unable to make the monthly payments of $XXXX and have fallen behind by X months. Describe the circumstances in detail and provide evidence.
Explain how you have tried to keep up with payments like using savings, reducing expenses, taking additional jobs, etc. I would like to work out a solution with you to modify the loan terms so that I can get current on the payments and avoid foreclosure.
I look forward to hearing back from you at the earliest so we can resolve this issue and I can continue to make timely mortgage payments. My phone number is XXX-XXX-XXXX and email is [email protected]. Please feel free to contact me if you have any other questions.
Thank you for your cooperation in this matter.
Sincerely,
Your name
Your signature
Enclosures: List documents attached as evidence
Key Takeaways
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Clearly explain the financial hardship making it difficult to repay your loan
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Provide evidence like termination letter, medical bills, divorce decree to support your claims
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Suggest specific loan modification options that would make repayment feasible for you
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Emphasize your commitment to repaying the loan if accommodated
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Maintain a sincere, respectful tone and provide contact details in the letter
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Attach documents validating the hardship circumstances stated in the letter
With the right elements, your hardship letter can persuade the lender to modify your loan terms. This improves your chances of overcoming the temporary financial hurdle without losing your asset.
Why a hardship letter is needed
The first step when you miss a mortgage payment, or even anticipate missing a payment, is to contact your servicer. All mortgage lenders/servicers offer some form of “loss mitigation,” which are options to prevent foreclosure. However, loss mitigation options are not automatically put into place when a payment is missed; you must contact the servicer to apply. Missing a payment or two that can be brought current within a few months will likely be resolved with a call to the servicer and verbal promise to pay.
If the financial hardship is more permanent and will result in three or more months of missed payments, the servicer will require completion of a loss mitigation packet. This “workout packet” includes an application for mortgage assistance, documentation to verify income and expenses, and an explanation of the hardship and why it is preventing you from making payments. Some servicers ask for a description of the hardship on the application itself, while others require an actual letter. The hardship explanation is needed so the servicer can assess your financial situation and determine any suitable solutions. A hardship letter is also a great way to organize your information and thoughts to best state your case.
What to include in a hardship letter
The letter does not have to be long, detailed and complicated. As my mom always used to say, “KISS!” (Keep It Simple, Sweetie.) It should be short — a few paragraphs to a page at the most. It is a chance to explain to the servicer what happened, any effort made to resolve the hardship and the requested solution.
How To Write A Hardship Letter for Loan Modification Step by Step Guide | Writing Practices
FAQ
What is considered a hardship for a loan modification?
What is an example of a good hardship letter?
How to write a loan modification appeal letter?