Losing your home through foreclosure can be really tough. It means not only saying goodbye to your biggest financial asset but also damaging your credit and making it difficult to get future loans.
However, foreclosure doesn't have to be inevitable. If you act quickly and take the right steps, you may be able to prevent foreclosure and stay in your home. Here are twelve steps to take if you're struggling to make your mortgage payments: #1. Contact Your Lender Immediately As soon as you realize you may have difficulty making upcoming mortgage payments, contact your lender. Lenders have programs in place to help borrowers who are experiencing hardships. The key is to reach out to them before you miss payments. If you ask for help early on, you'll have more choices available.
Let your lender know specifically the circumstances affecting your ability to make payments. Have details about your income, expenses, and any hardship ready to share. They may request documentation to verify your situation. Ask what programs are available to help you, such as repayment plans, loan modifications, or forbearance.
A carefully planned budget can be your financial guide when times are hard. Take a close look at what you're earning and spending. Find areas where you can reduce costs for a while to put more money toward your mortgage. A well-thought-out budget helps you control your money better and shows your dedication to fixing the problem.
While struggling financially, paying other bills first and letting the mortgage slide can be tempting. However, making your mortgage payment needs to become the top priority. Not only will late mortgage payments damage your credit, but banks are also less likely to offer assistance if you haven't made an effort to pay them.
If needed, use any extra income or trim expenses elsewhere so you can make the mortgage payment. Partial payments are better than no payment at all as well.
There are many government and non-profit mortgage assistance programs available. Federal programs include the Making Home Affordable Program and the Home Affordable Refinance Program. Individual states also have programs in place to provide emergency mortgage assistance. Contact your state's housing authority to learn more.
Non-profit organizations like UnidosUS and NeighborWorks America also provide foreclosure counseling and may have resources available. It's important to check your specific eligibility requirements for any mortgage assistance program.
If you're out of a job or your work hours have been reduced, don't wait—apply for unemployment benefits as soon as possible. The extra money can be a lifesaver when it comes to your mortgage. And if your earnings have taken a big hit even while you're still employed, it might be a good idea to look into underemployment benefits.
Depending on your state, underemployment benefits provide partial compensation for lost wages. Every bit helps when trying to avoid foreclosure.
Mortgage forbearance allows you to temporarily pause or reduce mortgage payments for a set period of time. Interest still accrues on the loan during this time. However, forbearance prevents your mortgage from going into default while you regain financial footing.
Contact your lender to request forbearance. You'll have to detail and document the hardship that makes you unable to pay. You can typically get up to 360 days of forbearance if approved, though terms depend on the investor who owns your loan.
While refinancing for a lower monthly payment can help, now may not be the time to do it. Lenders have tightened credit requirements, meaning refinancing can be difficult for distressed borrowers.
However, it could be worth exploring if you have equity, strong credit, and stable income. An interest rate reduction or different loan terms could lower your payments enough to prevent foreclosure.
Under the federal Making Home Affordable Program, distressed borrowers can apply for loan modifications. Modifications make the loan terms more favorable, making monthly payments affordable.
Loan modifications might include cutting down the interest rate, extending the period for repayment, or incorporating any skipped payments into the overall loan amount. To alter your loan, you'll have to submit extensive documentation to justify your need. This method is only useful if it results in a more affordable loan and you can meet the revised payments.
Sometimes the math just doesn't work, and keeping the home isn't feasible. If you owe substantially more than the house is worth or your income can't support the payments, voluntarily selling could be better than foreclosure.
Selling avoids foreclosure, lets you tap home equity, and salvages your credit. Consider a short sale if you owe more than the home's value. This allows you to sell the home for less than what is owed on the mortgage. While a major hit to your finances, it prevents foreclosure.
Renting all or part of your home can generate enough income to cover the mortgage. While not ideal, taking on a tenant or roommate prevents foreclosure and lets you keep the house until you get back on your feet.
Make sure to consult your mortgage company—some prohibit renting out the property without their approval. You also need to follow landlord-tenant laws if opting to rent.
Non-profit housing counseling agencies provide free assistance to borrowers at risk of foreclosure. Counselors have information on assistance programs, can negotiate with your lender, set up payment plans, and create action plans to avoid foreclosure.
There are housing counselors all around the country, sponsored by the Department of Housing and Urban Development. Get in touch with one of them for help and support during this tough process.
Preventing foreclosure is a journey that requires patience and persistence. It's easy to feel overwhelmed, but maintaining a positive mindset can make a significant difference.
Celebrate even the smallest victories, like successfully negotiating new terms with your lender or making consistent payments. Your determination to overcome this challenge will lead you to more stable financial ground.
Losing your home is painful—both financially and emotionally. Preventing foreclosure demands a combination of financial acumen, open communication, and a resilient spirit. By acknowledging the issue, seeking assistance, and remaining persistent, you can navigate the stormy waters of mortgage payment struggles and emerge with your home and financial well-being intact.
Remember, you are not alone on this journey—resources, professionals, and strategies are available to help you secure a brighter future within the walls of your cherished home.
