Not being able to make your mortgage payment can be scary. While the lender will not foreclose on your house for missing a payment or two, there are often penalties that will be added to your account for the tardy payments. This can lead you to falling further behind financially and make catching up increasingly difficult.
It’s important to realize that most lenders don’t want to foreclose on a house. They would much rather have you pay off the debt that you owe rather than have to deal with selling the house to try to get money for it.
Negotiate with Your Mortgage Lender
The first thing you need to do is contact your lender to determine if there is any negotiation that can be reached. You need to let the agent know that you have fallen on hard times financially. Consider how much you can reasonably afford to pay each month until you get back on your feet.
Contact your lender and try to negotiate a payment plan for the next few months that will allow you to pay smaller amounts until you are able to catch up financially. Many lenders have forgiveness programs built into their lending agreements that allows for negotiations to be able to be made for a very limited amount of time if something happens in your life that makes it impossible to pay your mortgage on time.
You will need to prove to the lender that you are in financial hardship. You can do this with bank statements, a termination letter, or an unemployment registry.
Try to Refinance Your Home
Before you get too far behind in your mortgage payments, consider refinancing your house. If you have been current on your payments for an extended period of time, you may be able to refinance your home so that you pay a lower interest rate for the mortgage. Finding out what your options are ensures that you will make an informed decision.
Apply for a Loan Modification with the Lender
If you know that you aren’t going to be able to make as much money as you once were or have lost the income of your spouse, apply for a loan modification with your lender. Unlike a short-term forgiveness option, a loan modification is a permanent change to your loan that cannot easily be changed once it is agreed upon.
You have to work with the lender to determine how much you will be able to afford to pay consistently from month to month. They should be able to lower it enough that the payment is affordable for you to be able to pay.
It’s important to be upfront and honest with the lender when applying for a loan modification. If you exaggerate your situation in any way, there is a good chance that they could deny your loan modification right away.
Negotiate for a Short Sale of the House
If you feel that it will be impossible for you to make the payments on the home, even with a loan modification, talk to the lender about selling the house with a short sale. A short sale is when you sell a home for less than is owed on it. As the homeowner, you will be obligated to pay the amount that is still owed after the home sells.
A lender doesn’t have to agree to allow you to sell the house for a short sale. If you are far behind in your payments, there is a good chance that they will deny the short sale because they consider you to be too high risk for them.
You may want to read more information about short sales on a short sale blog so that you can learn from first-hand experience what steps to take when you apply for a short sale. It’s important to be sure that you know what to expect and properly prepare to ensure your chances of being approved for the short sale are as high as possible.
Rent Out the House to Someone Else
If you haven’t fallen far behind in your mortgage payments yet but know that the house costs more than you can afford to pay, consider renting it out to someone else. You can often rent out a house for more than what your mortgage payment for the house is each month. This can help you to catch up on the money that you owe and actually get ahead with your payments eventually.
It’s important to go to an attorney and have a rental agreement created that is legally binding. You want to be sure that you do everything according to the law so that you are able to legally rent out the house.
Sell the House as Quickly as Possible
If you aren’t able to make ends meet, but are not upside on the house, you should sell it. While it can be hard to sell a house if you have lived in it for a long time because of the memories that have been created in it, being able to be financially sound is more important.
Let the realtor know the situation that you are in and have them help you determine the least amount you can afford to sell the house for so that you can be free from the debt altogether. You want to be able to walk away from the house without owing any money to anyone.
While it would be nice to be able to make a profit from the sale of the home, don’t be greedy. If there is a chance for you to sell the house and be debt-free, don’t let the opportunity pass you by. It’ll be better to be able to pay off the mortgage to the house and start over free and clear, than to have to constantly worry about paying the mortgage payment each month.
Declare Bankruptcy to Get Away from the Debt
If all else fails, you may have to file for bankruptcy. It’s important to contact a bankruptcy attorney to find out what your options are. You need to figure out if you want to walk away from the house, or if you want to keep it.
The attorney will be able to help you learn what the stipulations are for a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy. He or she can go over the pros and cons of both to help you learn which is the perfect option for you. It’s best to start the bankruptcy process before the house is put into foreclosure by the lender.
Everyone falls on hard times now and then, but how you handle the situation is what really matters. It’s important to address the mortgage situation with your lender as soon as possible so that you don’t totally ruin your credit and end up losing your home when you really want to keep it.
