Almost one-third of Americans are struggling financially to get by.
Even after the 2008 recession, Americans still find it difficult to afford their living expenses and basic needs. Almost half of Americans struggle to find the funds to pay an emergency $400 expense. Leaving these folks to either use a credit card, borrow money from others, or simply not pay.
If you’ve found yourself in this position, then you certainly aren’t alone. In a situation where a financial hardship arises, you may need to ask for a loan modification to lower your monthly payments. A financial hardship letter can grant you some leniency and much-needed relief.
We all know that circumstances out of our control can arise and take a toll. Knowing how to properly write a hardship letter can help you to create space to get back on your feet again. A financial hardship letter for mortgage payments, educational loans, or rent payments may be vital in maintaining your peace of mind during this difficult time.
As beneficial as it is, it’s important to know how to write a hardship letter properly. Read on to learn the mistakes to avoid when writing a financial hardship letter.
How to Write a Hardship Letter: 6 Mistakes to Avoid
1. Writing Too Much
Financial hardship letters should be concise and to the point. Stick to briefly describing the cause of the hardship, actions you’ve taken to amend the situation, and why the hardship will not improve for a period of time.
Aim to stick to around 500 words or less. Depending on the complexity and actions you’ve taken you may need to write more, but always aim to stick to the facts and leave out unnecessary comments or information.
Financial departments are sometimes overrun with financial hardship letters, so it’s best to keep it short to avoid misinterpretations. By keeping your letter short and to the point your lender gets the facts without needing to clarify information. If the information is unclear or misinterpreted then your request could be denied or delayed.
2. Referencing Irresponsible Activites
Your lender needs to know that the financial hardship arose of circumstances out of your control. If you lost your money because of a gambling, drug use, or because of trouble with the law your lender will not be sympathetic. Lenders want to see that even though you attempted to be responsible with your money, a situation or life circumstance occurred that caused financial hardship.
Causes that a lender would be understanding of include a death in the family, a job loss, an illness, or disability. Consult with your lender to see what they qualify as a financial hardship to see if your situation is applicable.
3. Leaving Out Financial Information
Most lenders require that you fill out an application for financial hardship as well as submitting a hardship letter. The application will inquire what your debts are and what you currently make. Your lender will have access to any recent purchases that require a loan such as purchasing a car by pulling your credit report.
If your financial hardship was caused because of purchasing something unnecessary or considered a luxury, then you may not qualify for financial hardship. For example, if you recently purchased a boat and the boat is for recreational use only then your lender will likely not be sympathetic.
Instead, your lender may suggest that you speak with a financial advisor who can educate you about budgeting and making purchases within your means. While this may be frustrating to hear and deal with, it may help you in the long run.
Make sure to include all recent debts to avoid being immediately denied because of leaving out financial information.
If the purchase you made was because of a basic need such as transportation or housing include these debts in your application. Explain the circumstances for needing this expense in your financial hardship letter.
Your lender still may not approve your loan modification request, but if you include all of the necessary financial information you can know that your application was thoroughly assessed. Reference your lender policies to see if your recent debt may forfeit your financial hardship loan modification request.
4. Other Sources of Help
Telling your lender that there’s an option of getting the money from another source of help could ruin your chances of getting qualified. For example, if you say you could borrow $10,000 from your parents, then your lender may consider this as an option for paying your loan instead of granting financial hardship.
Don’t mention hypothetical situations where you could get money from. Stick to the actions you’ve taken to repair the situation and why it’s not improving. Leave out any statement that could be misinterpreted or is truly not an option to rectify your financial situation.
5. Not Stating a Plan of Action
Lenders want to see how you plan on fixing your financial situation based on your current circumstances. They want to know that in the future you will again be able to pay the whole amount. Include in your hardship letter how your current situation will be worked out and how long this may take.
For example, if you recently lost your job and are temporarily unable to pay your mortgage then explain how you intend on paying the full amount as soon as you get another job. The lender wants to see how a loan modification will help you now so you won’t go into default or foreclosure later on.
6. Not Including a Proper Sign-Off
A proper sign-off for a hardship letter should express gratitude to your lender for considering a loan modification. You and your lender are working as a team, but your lender is not required to grant your request. Showing your appreciation can go a long way.
Always sign and date when you sign-off on your hardship letter. If your hardship letter applies to a residence include the address below your signature and date. This lets the lender know which residence you are referencing within your hardship letter.
Feeling More Confident About How to Write a Hardship Letter?
Continue building your confidence by exploring more information about writing hardship letters. To learn more about writing hardship letters, visit our blog.