When times are tough, and you can’t afford your mortgage payment, you may be wondering what your options are. A home is a significant investment and the place that you’ve built your life. If you’re struggling to make your monthly mortgage payments, know that you’re not alone. There are active, concrete steps you can take to fix the situation before it becomes an all out crisis.
Don’t Ignore the Problem
The worst thing you could probably do if you’re fearful of falling behind on payments would be to ignore the problem. You can’t just simply bury your head in the sand when it comes to mortgage payments. If you miss a payment without any communication, that can quickly lead to late fees, a dip in your credit score, and eventually foreclosure proceedings. The second you realize you might miss a mortgage payment, or even might just be worried, it’s time to take some action.
Contact Your Lender Immediately
The very first call you should make is to your lender. It may feel slightly intimidating at first, but remember that foreclosure is expensive and time-consuming for lenders as well. Most likely, they will want to work with you as opposed to heading into a foreclosure.
Be as honest as possible to your lender when contacting them. Be sure to give an explanation as to why you’re having trouble making payments. It could be due to job loss, medical bills, student loans, or other circumstances. Most lenders have a dedicated department to help borrowers who face financial hardship.
Explore Mortgage Modification Options
One option to make payments more affordable would be a loan modification. Not all lenders allow for loan modifications but it is worth bringing up if you’re running into issues paying your mortgage. A very important note though, modifying your loan may extend the life of the loan in some cases meaning you’ll actually pay more over time. The pro’s however are that you might be able to reduce your interest rate and even reduce the principal balance in some cases.
As mentioned, there’s absolutely no guarantee for a loan modification, though lenders may be willing to consider them for borrowers who demonstrate actual and genuine hardship, plus a commitment to staying in a home.
Typically, for a loan modification, you would need documentation of your financial situation, which can include income statements, tax returns, and a hardship letter explaining your circumstances. This whole process can take several weeks or months, so that’s why starting early is especially crucial.
Consider a Repayment Plan
In some instances, some borrowers can be eligible for a repayment plan. Top examples include a brief period of unemployment or unexpected medical expenses. A repayment plan normally adds a portion of the past due amount to your regular monthly payment. This can help you catch up on missed payments over time. Once you’ve repaid what you owe on your mortgage, then the monthly payment returns to normal.
Look Into Forbearance
It might sound intimidating but can help some borrowers who need it. Forbearance is a temporary pause or reduction in your mortgage payment. During forbearance, your lender normally agrees not to pursue foreclosure while you work on getting back on your feet. This option is typically used if you’re facing a short-term crisis like a temporary job loss or medical emergency.
Forbearance does not erase what you owe to a lender. You will need to pay the missed payments either through a loan repayment plan or loan modification. Be sure to understand the repayment terms before agreeing to any forbearance.
Think About Refinancing
One of the best times to look at refinancing is when you have some equity in your home and you have a high credit score. This could potentially lower your monthly payment by securing a lover interest rate or extending your loan term.
Refinancing typically requires a stable income and good credit, so it may not be an option if you’re already behind on payments. Normally while refinancing, you do have to pay your closing costs again, which depending on your home could be in the hundreds or thousands of dollars. Still, it’s worth exploring, especially if interest rates have dropped since you took out the original mortgage.
Tap Into Government and Nonprofit Resources
Depending on your specific situation there may be a government program or non-profit that may be able to help out. There are various government programs that exist to help struggling homeowners. HUD (The Department of Housing and Urban Development) offers free housing counseling through certain approved agencies nationwide. These HUD counselors can typically review your situation, explain all of your options, and even help you communicate with your lender.
There are some states that also offer emergency assistance programs that can help provide temporary financial help. Always research what’s available in your area, as these programs have very specific eligibility requirements and limited funding.
Rent Out Part of Your Home
Though not always ideal, if you have extra space, it could be worth it to consider taking on a roommate. If it’s possible to rent out a basement, garage apartment, or ADU to help out your financial situation, it may be worth it.
The extra income could be enough to cover your mortgage shortfall while you work on improving your financial situation. Just be sure to look over any rental agreements and that they apply with local laws and your own mortgage terms.
Consider Selling Your Home
If you’ve exhausted other options and simply cannot afford your home long-term, selling might be your best choice. If you have equity in your home, selling allows you to pay off your mortgage, avoid foreclosure, and potentially walk away with some money to help you start fresh.
Even if you owe more than your home is worth, a short sale might be possible. In a short sale, the lender agrees to accept less than the full mortgage balance. While this will impact your credit, it’s generally less damaging than a foreclosure.
Avoid Foreclosure Rescue Scams
The most vulnerable people when it comes to scams are those that are desperate. Always be wary of anyone who asks for upfront fees, anyone who promises you the world, or anyone that tells you to stop communicating with your lender. Definitely don’t talk to anyone who would want you to sign over the deed to them. Legitimate housing counselors typically provide free or low cost services.
Take Action Today
Financial stress can be overwhelming, but taking small steps towards a brighter financial future can help you regain control. Acting fast is the only possible solution when it comes to having financial troubles with your mortgage. Start by making that call to your lender, reaching out to a housing counselor, and by gathering all related financial documents. The earlier you act, the more options you should be able to have overall.
Temporary setbacks don’t always mean a permanent loss. With persistence, clear communication, and a willingness to explore all available options, many homeowners are able to successfully navigate through mortgage difficulties and keep their home.
Your situation is challenging, but it’s not hopeless. Take it one step at a time, ask for help when you need it, and keep moving forward.
