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The Wells Fargo loan modification formula is utilized in their federal loan modification program which is designed to provide all qualifying homeowners with long-term financial relief through more affordable home loan payments. Considering the fact that this initiative is essentially funded by your tax dollars, you might as well make use of it, and loan modification represents one of the most effective ways of saving your home from foreclosure if you’re facing overwhelming financial hardships.

  • The objective of the loan modification formula

The relevant formula related to debt ratio and target payment is one that has been set by the Treasury. The objective is to bring about a modified mortgage payment that equates to 31% of your gross monthly earnings. This projected payment is what is referred to as your target payment. There are established ways of arriving at the 31% mortgage payment. These include lowering the rate of the mortgage to as little as 2%, prolonging the term of the mortgage to as much as 40 years, or at Wells Fargo’s discretion, writing off a portion of the outstanding principle on the mortgage. You stand a good chance of being approved for a loan modification if the desired target payment in your case can be achieved through one of these means. Your other debts and expenditures also need to be taken into consideration, and you will need to manage your financial situation in such a way so that you have the suitable amount of disposable income available to you.

  • The significance of Target Payments

According to stipulations of the federal HAMP program, an affordable mortgage payment is designated to be between 31-38% of the relevant gross monthly income. In this context, a mortgage payment must be thought of as being made up of a combination of principal, taxes, association costs, and insurance.

  • The significance of Debt-to-Income Ratios

These ratios play a pivotal role in the loan modification process because of the fact that approval is significantly based on financial qualification. Wells Fargo will use your DTI ratio as a guide when reaching an understanding of your ability to make good on repaying your loan. In order for the risk of default to be minimized as far as possible, these ratios must ideally fall within set limits. This is meant to safeguard you as the homeowner from being overwhelmed by your financial obligations.


Cash flow is part of the Wells Fargo approval formula and tells the bank if you are truly in a financial hardship.  Ideally, after paying all of your monthly bills you should be barely making it or even in a negative cash flow-BUT after the loan mod you need to show that you will have at least $250 left over each month.  Use the Loan Mod Calculator to fine tune your expenses so that your results show you a PASS for these two important categories.