How to Write a Hardship Letter for a Mortgage

A hardship letter can help you avoid foreclosure and find mortgage relief

Fact checked by Betsy PetrickFact checked by Betsy Petrick

If you’re struggling to make your mortgage payments, it may seem like you’re out of options and foreclosure is inevitable. However, your mortgage lender may be willing to work with you if you communicate openly about your situation and provide a hardship letter.

If you think you may need mortgage relief, it’s important to act as soon as possible. You’ll need to understand what a hardship letter is, what situations to use it in, and how to write one. This way, you can potentially avoid foreclosure.

Key Takeaways

• A hardship letter is a document some lenders require when you’re struggling with your mortgage payment and seeking relief.
• A hardship letter can help you qualify for loan reinstatement, forbearance, repayment plan, modification, a short sale, or a deed in lieu of foreclosure.
• Mortgage relief for financial hardships is often available in circumstances like a job loss or illness.
• A hardship letter should include details about your financial hardship and the relief you’re requesting.

What Is a Hardship Letter?

A hardship letter is a document you provide to your mortgage lender when requesting mortgage relief. In the letter, you’ll describe your financial hardship and provide supporting documents. It may also be helpful to explain how long you expect the hardship to last and how you plan to resolve it. Finally, explain what type of mortgage relief you’re requesting.

Generally, the goal of a hardship letter is to help you avoid foreclosure. There are several types of mortgage relief—also known as loss mitigation—that may be available, depending on your situation. Some of these solutions allow you to keep your home, while others don’t. 

Here are some mortgage relief options that may be available:

• Loan reinstatement: If you haven’t been making your mortgage payments, a loan reinstatement allows you to repay the amount you owe and get caught up.
• Loan forbearance: If you are facing hardship that will prevent you from making your payments, forbearance may allow you to temporarily pause or reduce them.
• Repayment plan: If you’ve fallen behind on your payments, you can increase your payments temporarily until you’re caught up.
• Loan modification: Your lender may agree to lower your monthly payment by modifying certain terms of your loan to make your payments more affordable.
• Short sale: If you can no longer afford your payments and you’re underwater on your mortgage, a short sale allows you to sell the home.
• Deed in lieu of foreclosure: This option allows you to relinquish ownership of the home while avoiding a short sale or foreclosure.

Keep in mind that not every solution will be available to every borrower facing hardship. The loan relief options available to you may depend on both your mortgage lender and your financial situation. When you’re writing your letter, it may be helpful to describe how a particular form of relief would help improve your situation and get you back on track with your payments.

Hardships That Qualify for a Letter

There’s not a set list of hardships that will qualify for loan relief. You may qualify if you’re experiencing any hardship that’s out of your control and has impacted your ability to make your loan payments. Some of the most common reasons for a hardship letter include:

• Job loss
• Divorce
• Death of a spouse
• Illness 
• Reduced income
• Natural disaster
• Military service
• Expected emergency expenses

To qualify for loan relief based on an expected emergency expense, the expense must generally be one that’s out of your control. For example, major medical bills or home repairs may help you qualify for mortgage relief, while gambling losses or a large discretionary purchase probably won’t.

Important

If you’re facing one of these hardships, it’s important to contact your loan servicer as soon as possible. If you stop making your payments without notice, your loan will become delinquent and may eventually go into foreclosure. At that point, it may be too late to explore your other options.

How to Write a Hardship Letter

If you’re struggling to make your loan payments and need mortgage relief, there’s a step-by-step guide to help you:

1. Introduce yourself: Give your name, account information, and the reason you’re writing the letter.
2. Describe your hardship: Whatever situation that’s preventing you from making your loan payments, describe it here, focusing specifically on the financial details.
3. Discuss the timeline: You can include the length of time you’ve been in the situation, the solutions you’ve tried, and how long you expect the hardship to last.
4. Request relief: In your letter, ask for a specific type of mortgage relief, such as loan forbearance, modification, a short sale, or something else.
5. Describe the ideal outcome: Explain to your lender how the relief would help your situation and help you get back on track with your payments.
6. Close out your letter: End your letter by summarizing your request and thanking your lender for their time.
7. Provide supporting documents: Enclose any financial documents that show your hardship and can help the lender understand your need for relief.

Example of a Hardship Letter

If you aren’t sure where to start on your hardship letter, here’s an example you can use to get started. Remember that this one is only an example letter. You should write your own that’s specific to your situation.

To Whom It May Concern,

My name is John Smith, and I’m writing to request a temporary loan forbearance for my mortgage on my home at 123 First Street. I’ve had my mortgage with (financial institution) for (number) years and have never missed a payment, but I am currently unable to make my monthly mortgage payment of $(amount).

Recently, our family faced unexpected medical bills that have left us unable to make our mortgage payments. Though we’ve reduced our expenses elsewhere, we’re still unable to pay the medical bills and meet our other financial obligations.

I’m writing to request loan forbearance on my mortgage. The medical bills total $(amount). Based on my calculations, I’m confident that if I could qualify for loan forbearance, I could pay off the medical bills within (number) of months and resume my mortgage payments.

Thank you for your time and for considering my loan forbearance. I’ve attached copies of the medical bills in question and a copy of our monthly budget.

Sincerely,

John Smith

How Do You Write a Proof of Hardship Letter?

To write a proof of hardship letter, you should introduce yourself, describe your financial hardship, detail how long you expect the hardship to last, request a specific type of mortgage relief, and explain how that relief will help you get back on track with your loan payments.

What Should You Not Put in a Hardship Letter?

When writing your hardship letter, you should highlight the financial facts surrounding the situation while leaving out your emotions about it. While you may think an emotional appeal will help you, it’s not the purpose of a hardship letter. Additionally, avoid directing blame or anger toward the lender.

What Is Considered a Hardship Reason?

Generally speaking, a financial hardship is anything that’s outside of your control and has impacted your ability to make your mortgage payments. Common examples include job loss, divorce, illness, and unplanned emergency expenses.

What Is an Example of a Good Hardship Letter?

An example of a good hardship letter is one that describes your financial hardship in a professional, unemotional way and provides documentation as evidence of your situation.

The Bottom Line

Unfortunately, many people find themselves in situations beyond their control where meeting their financial obligations becomes a challenge. Often, the homeowner may face foreclosure. 

If you take action early, you may be able to avoid foreclosure by providing your lender with a hardship letter and requesting mortgage relief in the form of loan modification, foreclosure, short sale, or another option. If you’re unsure of the best next steps, consider speaking with an attorney or a Department of Housing and Urban Development (HUD)-approved housing counselor.

Read the original article on Investopedia.