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A letter of hardship, also called a letter of explanation, is an official letter that you write to your lender to explain your current financial situation and show that you are unable to repay a debt such as your home loan.

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These letters are used to request a temporary reduction, suspension of your monthly payments, or other remedy. Here is what you need to know:

What Is Considered Hardship?

Hardship means a lot more than you overspent on your vacation. Rather, it is from a serious of circumstances often out of your control that affect your ability to pay and the value of the home.

Homeowners typically find themselves in hardship when their property ends up underwater when the value of the property drops, monthly payments are late, or you took out a no money down mortgage.

Other examples of hardship include:

  • Military service
  • Unemployment or reduced income
  • Divorce
  • Unexpected disasters such as flooding or tornados
  • Medical emergency
  • Incarceration
  • Death of the primary breadwinner

Write Clearly & Be Polite

Now is not the time to express your frustration at your lender, bank, or realtor. As the saying goes, “You catch more flies with honey than with vinegar.” Use simple, direct, respectful language in your letter of hardship and remember to include the date, your contact information including name, address, email, and phone number so your lender can easily contact you for more information.

When mailing, send your letter through certified mail and keep a copy for yourself. Make sure you included copies of supporting documentation like your paystub.

Be Honest

It is critical that you do not lie in your letter of hardship, as lenders will follow up on the information you present to them. Let your lender know how your current situation arose, how your finances have changed since you originally purchased your home.

Also explain what you have done to try and fix the situation such as working a second job, and how and why the situation cannot be improved without help. Indicate that if a short sale is not approved, your only other alternative is foreclosure.

It’s essential that you do not make false promises such as paying back more than you can afford and to be very specific about what remedy you are seeking, be it a short sale or reduced monthly payments.

Writing a letter of hardship can be emotionally difficult and embarrassing but it is the first step in helping your lender help you turn the situation around and find a solution.

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