Learn about a few of the options available when the monthly mortgage payment is no longer affordable.
For many people, a mortgage payment represents the largest chunk of their monthly expenses. Getting behind on these payments can cause a great deal of stress and financial strain. After a while, you may get to a point where you feel like you can’t catch up. If you fear you are headed in this direction, don’t give up hope! There are steps you can take to avoid foreclosure.
1. Cut Spending
This should be the first step you take once you begin to realize you’re having difficulty paying your mortgage on time. Some people start to cut their spending well after they’ve fallen behind on a home loan. While that offers no long-term help, taking action before getting in the red can help you avoid a bigger problem.
Take a long, hard look at what you spend money on and determine what can be cut. It may be difficult to do, but a situation like this calls for sacrifice. Talk to friends or do some research online for money-saving tips and ideas. Consider switching to a single-car household if you can. Instead of keeping that $50/month gym membership, borrow workout DVDs from the library to use at home. There are lots of ways to reduce spending. It is up to you to choose which ones will benefit you the most.
2. Talk to Your Lender
If reducing your spending is still leaving you financially strapped every month, you may need to take the next step and talk to your mortgage lender. It’s important to understand that your lender does not want your mortgage to go into default. Banks typically lose money on foreclosures, therefore lenders will often work with you to set up a plan to get you back on track. Remember to be upfront and honest with your lender about how much you will be able to repay and when. Late fees will only add to your debt.
3. Consider Refinancing
If the ability to make your monthly payment is still threatened even after you have cut spending, you may want to talk to your lender about refinancing. If the current interest rates are lower than the rate on your existing mortgage, refinancing could save you a good chunk of money each month. Although refinancing may not be the solution for everyone, it could be a good alternative to selling your home if you are able to qualify for a new loan.
Under the HOPE for Homeowners Act of 2008, homeowners considered to be at-risk for foreclosure may be able to refinance with a more favorable loan at a lower interest rate. If the lender agrees to participate, this act can allow borrowers to switch to a 30-year FHA loan. Many states offer free programs designed for homeowners who may be facing foreclosure. These programs offer things like debt counseling and help guide borrowers through the process of refinancing.
4. Look At Savings/Asset Options
Other factors to consider are your savings, equity, or other assets. Some homeowners who have fallen behind in payments will use their savings to get out of the hole. This isn’t always a surefire way to cure your financial woes. Unless you expect your monthly income to increase, eventually your savings will be depleted. This should only be done as a temporary fix, and other plans should be made for avoiding foreclosure.
5. Sell Your Home
Many homeowners who get into financial crises do whatever they can to keep their homes. This is usually due to the fact that they cannot afford another house of the same size/value, sentimental reasons, or because they still have a good amount of equity in the home. However, some people find it better to sell their home and downsize to a more affordable living space. If the local real estate market is healthy in your area, this could be a preferable option. The sale could cover your loan and then some, leaving you free to start fresh in a new home.
Another consideration, if you are upside-down in your mortgage, could be putting your home up for a short sale. A short sale requires the mortgage company to accept less than what is owed so that you can sell your house for its true value in today’s market. You won’t get proceeds from the sale since any money received will go to the mortgage company and any additional costs associated with the sale.
Not being able to make mortgage payments is a problem for many Americans. Every situation is different, so no one option will be the solution for all. Take the time to fully understand your particular needs and talk to an expert about which path to take. Most importantly, be careful! Don’t make hasty decisions and beware of any unsolicited communication from companies other than the one your mortgage is associated with. Unfortunately, there are many companies offering so-called “help” for people facing foreclosure. Use your best judgment and get informed so you won’t be taken advantage of during what can be a stressful time.