Why Are Bank Statements Needed in Loan Modification?

A loan modification is a tool that homeowners can use to avoid foreclosure or other actions that can cause loss of a home. This tool changes aspects of the original mortgage, such as the length or interest rate, and may add delinquent amounts back into the modified loan terms to bring the borrower's account current. To qualify for a loan modification, you will need to provide your lender with several types of documentation, including bank statements.

Income Verification

Bank statements, along with pay stubs or tax forms, help verify the borrower's income. Income verification is necessary for a loan modification because, in order to qualify for a modification, a borrower must demonstrate that he has the income to make payments at a reduced rate, which is typically between 31 and 38 percent of his gross income.

Expense Verification

Expenses are factored into a borrower's ability to repay a mortgage loan at a reduced rate under a modification. Expenses like utility payments, car loan payments, groceries, credit card installment payments, insurance and medical expenses all reduce a borrower's income, potentially affecting her ability to make modified mortgage payments. Bank statements, used in conjunction with creditor bills and other documentation, help lenders verify expenses for the purpose of qualifying a borrower for a loan modification.

Providing Bank Statements

Bank statement requirements vary by state and lender; however, you will typically need to provide two months of statements for each account that you own. You will need to provide both checking and savings account statements. Although you may not use a savings account for monthly bills, your lender will want to see that you do not already have the money available to catch up on delinquent payments.

Considerations

Check with your lender to make sure it is permissible to black out the account numbers on your bank statements for security purposes. Most lenders will allow this because they understand the need for account security; however, asking the lender before submitting your modification documents can help avoid delays in approving your modification.