6 Tips for Writing a Financial Hardship Letter to Your Lender

Millions of Americans are facing financial difficulties. As many homeowners face increasing prices, the risk of late payments, default, and disclosure rise due to inflation and high oil prices. If you’re struggling to make your mortgage payment, you might feel like there’s nothing more you can do. Communicating with your lender is one of the most important things you can do once you determine you’ll be more than a few days late or unable to make your payment.

If you find that making your mortgage payment is too hard, you might consider sending a financial hardship letter.

What is a financial hardship letter?

A financial hardship letter is a document you submit to your lender outlining your financial difficulties. The letter usually asks the lender for one of the following:

  • Adjustment to your interest rate
  • Lower monthly payment
  • Loan modification
  • To bring your account to a current status
  • Suspension of late or past-due payments
  • A short sale agreement
  • A deed in lieu of foreclosure or a settlement option

Your hardship letter should outline your financial hardship, including the date the financial problem occurred or began and how long you anticipate that the hardship will continue.

Who should write a financial hardship letter?

Homeowners who want financial help from their lenders should consider sending a financial hardship letter if they can prove they have a need. Common qualifying financial hardships include:

  • Layoff
  • Pay reduction
  • Illness or injury
  • Disability
  • Divorce
  • Death
  • Natural disaster
  • Military deployment
  • Long-distance job transfer
  • Incarceration

Lenders do not consider a decline in property value, overspending on nonessentials (like gambling or expensive vacations), interest rate increase on your ARM mortgage, or temporary income disruption as qualifying hardships.

Tips for writing your financial hardship letter

Lenders must review a lot of documents, applications, and letters. You’ll need to stick to a few significant points when constructing your financial hardship letter if you want approval.

Know your goal:
What specific help do you want from your lender? If you’re at risk of foreclosure, you may want to ask for a short sale or settlement agreement. However, if you think a slight adjustment to your loan terms could make a difference, asking for a reduced interest rate or lower monthly payment could be a good option. Before you write your letter, identify your goal.

Write your letter from the heart:
You can find financial hardship letter templates online. While these templates can help you outline the form of your letter, you should never copy and paste a template and send it to your lender. Personalize the letter with specific details and personal information about your situation and your loan.

But…. Don’t’ overshare:
The information you share in your letter should pertain specifically to your financial hardship. You don’t have to overshare about your medical diagnosis, or your partner left you to sell kangaroos in Hawaii. If your health issues and your divorce caused financial stress, make that clear, but keep the letter professional.

Keep your emotions in check and only provide the necessary information in a neutral tone.

Provide details:
You should have documentation ready to submit to your lender to prove your financial hardship. You may want to include some of the following documents with your financial hardship letter:

  • Recent paystubs
  • Brokerage statements
  • Bank statements
  • Tax returns
  • Employment termination letter
  • Divorce decree or separation paperwork
  • Medical bills
  • Accident reports/statements
  • Death certificate
  • Proof of incarceration
  • Budget (including a list of your monthly expenses)
  • Public assistance documents
  • Disability award letter
  • Unemployment letter

Any documents that prove financial hardship will solidify your cause with the lender.

Format the letter:
Here’s a simple outline for how you can set up your letter:

  1. Format your letter with the date and your account number at the top.
  2.  Address the lender
  3. Begin your letter by stating the purpose of your letter (i.e.., requesting consideration for financial assistance with your loan).
  4. Outline your financial situation and your proposed solution.
  5. Sign with your full name. Your co-borrower should sign the letter as well.

Proofread your letter:
Run the document through spellcheck before you send in your letter. Reread the paper. Reread it out loud. Have a friend, or family member read the letter. You’re asking your lender for help; you want the document to be well-written and error-free.

If you have any questions about selling your home for cash or getting out from underneath a distressed property, reach out today. We’re happy to answer any questions.

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