I got some questions in the comments on my last post. I’m writing this post to explain them more clearly. I was going to write a long reply, but more people will read it if it’s a post. This is the third article about my mortgage modification experience and you can read the previous two articles here:

1. Eligible for mortgage modification
2. Qualified for mortgage modification

First of all, right now I’m only short $200 a month based on the modified mortgage payment. I am no longer several hundred dollars short. This month, last month and the month before that I was about $500 short based on my original mortgage payment.

You can’t make partial mortgage payments, so I saved what I had left over each month when I couldn’t make the full mortgage payments, and I caught up on the utilities on which I was behind.

I’m not posting my itemized budget because it’s private. You can assume I have the necessary expenses of a homeowner with one teenager and two dogs. There are few wants in the budget, and I do save for my son’s birthday and Christmas gifts. He doesn’t get a haul from me. He gets mostly what he needs, like clothes and shoes. His dad and grandparents take care of the wants. He is of the age now that if he wants something he goes out and earns the money himself.

He doesn’t have a car and he isn’t old enough to drive. His bike was stolen last year so we trash-picked a pretty good one and fixed the minor problems with it. We don’t rent movies or go to the movies, we don’t buy books that aren’t needed for school and we don’t partake of entertainment that costs money. We check out books and movies from the library (free). Our libraries have huge DVD and video collections of entertainment movies, TV series, and documentaries. If they don’t have a book I want to read, they get it through the inter-library loan program, though I may have to wait for it to get here.

I spend 5-6 days a week at the public libraries with students. There is no reason not to use the free resources available. They have plenty of free programs that are informative and entertaining on top of the usual library resources.

Ok, back to my income discussion. A couple of hundred dollars is one student, and the really heavy business of the tutoring year is about to start. Mid-term exams are in December before Christmas break. I had a college student who made up that income but she dropped the class and quit tutoring because she was supposed to take a different one. So I need one more student again.

Keep in mind my budget is based on my tutoring income, not on my online income. Online income isn’t stable and it isn’t much, but it does provide a small cushion. I reported it, but my HUD counselor agreed it wouldn’t be a good idea to base a budget on an unstable income source. Anything net business expenses from that income goes into savings.

A balanced budget for a modification is required. If you show that your financial situation is steadily improving and stabilizing at a point where you can meet all your obligations, and that your budget will be balanced in a month or two, they accept it.

The HUD counselor won’t call your mortgage company unless he or she feels you are financially stable or close to it and will make it within 30-60 days. The mortgage company won’t give you the modification if they don’t agree with the HUD counselor’s analysis. They both go over all the paperwork thoroughly. They verify your income, bank statements, and tax returns before they accept your budget.

My budget just went through my lawyer and federal bankruptcy court. I have no desire to go to prison, so I was not only 100% truthful about it, I have the receipts to back up my numbers, which agree with my bank statements.

A balanced budget isn’t required to discharge a bankruptcy under Chapter 7. It is under Chapter 13. Financial education classes about budgeting are required and I took those classes. Even though I don’t subscribe to all of Dave Ramsey’s teachings, his budgeting methods are very good, and I’ve kept a detailed monthly budget for a couple of years.

The HUD counselor and  mortgage company did a second budget based on the modified mortgage payment, and I’m one student away from having enough to meet all our expenses including savings for an emergency fund and once-yearly expenses. Right now I don’t have enough to save for the once a year payments or reestablish an emergency fund.

I have enough saved to make the one-time contribution payment and the first modified payment required for my mortgage modification. I saved the money left over that would have gone toward mortgage payments for the 3 months I couldn’t pay (partial mortgage payments aren’t accepted).

My marketing plan isn’t a pie-in-the-sky plan that may or may not pay off. There are a lot of students out there who need a tutor and I need to find one of them. Every time I do any marketing at all I get a couple of students. I got 3 new students in October, but lost the one who dropped her class.

Getting one more student will not be difficult. I hope to fill my schedule completely this month and start a waiting list. I have one hour to fill on Mondays, two on Tuesdays, and two on Thursdays. My tutoring schedule for high school students is constrained to 5 hours per weekday (M-Th) because of the time school lets out and the time the libraries close, excluding homeschool students. They’re available during the day. I can add students who are willing to meet on weekends. I have one weekend student so far.

There aren’t enough high school and college math and science tutors to go around. We have the largest population in the state, a ton of public and private high schools, one large community college, a major historically African American university, and the flagship state university (LSU) right here in town. Getting my name out there is all I have to do to get more students.

I started with marketing to the families and schools I worked with when I was an employee of the tutoring company. I marketed to my local homeschool lists and I have one homeschool student. I have been branching out since school started and I’ve gotten students from referrals, web searches (Google local), and directly visiting some schools I haven’t worked with before.

I have students from Baton Rouge Community College and LSU. Friends who went back to college are students. One of my friends is the director of Student Support Services at LSU and she gives out my contact information whenever a student asks for a non-campus tutor. I start working with a student tomorrow whose mom was a previous colleague from when I was a chemist.

I get referrals from my previous tutoring employer. Her number is still all over town so she refers her previous tutors whenever people call and find out she closed her business. I worked with her for 3 years and she provides me with a highly respected reference as well as referrals.

I hope this answers the questions from the previous post comment. If not, please leave more questions and I’ll do my best to answer them.

Technorati Tags: bankruptcy update, income sources, mortgage modification

This is the second article about my experience with the HUD mortgage modification program. You can read my first article here: Eligible to apply for mortgage modification.

I met with my mortgage loss mitigation and foreclosure prevention counselor yesterday morning after turning in my information packet. My packet was complete so there were no delays in talking with my mortgage company.

I qualified for the mortgage modification by the end of the session. My new payment will be $260 less than my current payment.

Here’s how it works:

• Visit HUD website, or call 1-888-995-HOPE to determine eligibility
• If eligible, contact HUD-authorized local agency for an application. HUD provides names and numbers if you’re eligible
• Complete application and turn in all required supporting documents
• Meet with counselor
• Counselor reviews application and all supporting documents, including a fresh credit report
• Counselor decides if you meet qualification requirements
• Counselor calls your mortgage company if you qualify
• Mortgage company makes a decision for modification, requires more information, or turns you down
• If you qualify for a modification, your mortgage company recalculates a new payment amount at a lower interest rate and lower principle payments based on your lower income level
• The modification is temporary based on whether you make your first 3 payments on time. Mine will be due December 1, January 1, and February 1
• You do not have to catch up the payments you missed before qualifying for the modification
• Receive packet from mortgage company in the mail, read it thoroughly and take it to your HUD counselor
• You may be required to make a contribution payment equal to your new mortgage payment or as much as one of your old mortgage payments. I’m not sure about these details. I’ll find out when my packet arrives from the mortgage company
• Once you make the first 3 payments on time, your modification is in force for 5 years

After 5 years, your mortgage payments go back up, but I’m not certain of the details. They will be in the packet coming from the mortgage company. However, your agreement in 5 years will be a fixed-rate mortgage that will be affordable. This is really important for those who have variable rate mortgages.

If you missed mortgage payments and cannot catch them up before your lender may foreclose on you, it is important to contact your local HUD-authorized mortgage counselor and apply for a modification. This program gives you time to increase your income, pay off other debts and establish savings.

One important note: BEWARE of SCAMS!

Mortgage modifications and refinancing through the federal program is free. Scam artists will ask you to pay hundreds to thousands of dollars and say they can get your modification done more quickly and get you a better deal. Don’t believe it. All that will happen is you and your money will soon be parted, and your mortgage problems will not be solved.

Update

After my bankruptcy, I only have about $8,000 in federal and state taxes to pay, and my mortgages. I’m turning the student loan mess over to my friend’s parents. They are wealthy and can afford it far better than I can.

My current income is up to $2190 per month. I’m still a couple of hundred dollars short of what I will need to pay for everything in the budget each month, but some of the budget can be put off while I increase my income over the next few months.

Last month I made $1950. I’m up $240 from then and I expect to get at least 1 or 2 more students in November. One student will bring in just what I need to meet the entire budget every month. Two students will bring in extra money that I can use to reestablish savings and accelerate paying off my back taxes.

I’m establishing savings first, and then accelerating paying off my taxes. My taxes will go down this year and will calculate out to refunds for 2009 for both federal and state. My refunds will be applied to my outstanding balances, lowering my debts faster.

I am launching another marketing campaign this week to find those couple of students I need. I also have enough to have some business cards printed. I was giving out fliers with my information on them. Now I’ll be able to put fliers up on boards and give business cards out to people who ask about my services.

Technorati Tags: bankruptcy update, mortgage modification, update

My bankruptcy attorney mailed me a fact sheet this week about HUD programs and mortgage modification. I visited the HUD website and filled out the questionnaire. The result was I am eligible to apply for the HUD program. I am working on getting all the paperwork done so I can turn it in Monday or Tuesday.

I must get the paperwork in and get the process going because I am two months behind on my mortgage payments. I missed August and September. The mortgage company told me to pay the oldest payment first, so I need to pay the August payment as soon as I can. I should have enough to make that payment within 30 days.

Being eligible to apply does not mean I qualify. That will be determined after I turn in my packet to my local HUD agency and they review it. Then they negotiate with my mortgage companies to modify my loans so the payments are more affordable with my current income.

Right now my income is $1950 per month and growing. I have another marketing campaign out to get at least a couple more tutoring students. I expect to get at least one more client in October, and probably two. First 9 weeks report cards come out on October 13, and parents of some students not doing well will seek tutoring for their kids.

On average, I’m about $500 short each month of what I need to meet all our expenses. I say “about” because I’m catching up on utility payments that got behind over the summer when I had limited income in June and very little income in July. In case you haven’t read previous posts, the tutoring company I worked for closed as of June 1, 2009 and we didn’t find out about it until May 21. I also earn different amounts from my online endeavors that can vary from $75-$250 depending on advertising revenue and sales commissions in any given month. Since it varies so much I treat it as a gift or found money.

Our water/sewer and garbage bill went up, then came back down by twenty dollars. I have no idea why. The phone bill will be lower because I was able to change our plan, and so will our cable/internet bill. I was able to make significant changes to that plan as well. They have more plans available than just a year ago.

They changed our electric meter from an analog to a digital meter in April, and ever since then our electric bill started going down by $20-$30 per month. We have the level billing option, so the amount we pay is a 12 month rolling average. That means our actual bill has gone down a lot more than that.

We’ve done a lot around the house to make it much more energy efficient. We put compact fluorescent bulbs in everywhere they make sense, turned the A/C up a degree, and went around the house and unplugged everything we don’t use or don’t use often. I started using “dryer balls” and I put all the clothes through the spin cycle twice in the washer. It cuts drying time about in half. Electric dryers use a lot of power, so running it half as much saves a lot of money.

I also had to replace my laptop in September with a refurbished machine I was able to get for $200 from a friend. I thought it was new, but upon careful examination, it’s a refurbished older machine. The repairs to my old laptop were not advised because of its age and were estimated to be well over $200. When they diagnosed it, it looked to be either a processor problem or a motherboard problem. Neither of those is worth fixing with the inexpensive cost of computers today. My old hard drive is still working so I can access it when I need it using an adapter (I already owned it).

Why replace the computer? I run my tutoring and online businesses using Quickbooks and email. Without a PC I can’t run Quickbooks. My accountant strongly advised me to get a computer, even if I had to borrow or rent one, because the IRS would find it fishy that 8 months of my business year are in a real accounting program and the other 4 months would then be on paper. So I asked around my group of friends until I found a deal I could manage.

Since we are starting over after the bankruptcy, we will be able to meet our expenses as soon as I get my income up about $500, even if my mortgages don’t get modified. Two new students will make that happen, and I’ll find at least two more students this month. My online income grows in small fits and starts, but I’m not counting on it to solve my income problem. What I make helps, and it grows, but I’m focused on my tutoring business because it is in demand and makes real money I can depend on.

If I don’t come up with two students in about 2 weeks, I’ll go back to delivering pizzas until I find them. I don’t think it will come to that. High school level math and science tutors are in big demand.

Technorati Tags: bankruptcy, mortgage modification