Can't Make Your Mortgage Payments? Here Are Your Options
Financial difficulty can leave you unable to pay your mortgage, but that doesn't always mean you're facing foreclosure.
When you find you can't make your mortgage payments, contact your lender to discuss options that may help you get back on your feet without losing your house.(Getty Images)
Even the most careful planners and savers can get caught up in an unexpected financial setback. A layoff, a legal matter or a serious medical issue can quickly find homeowners facing the worst-case scenario: What if I can't make my mortgage payment?
Today, the number of foreclosures is a mere fraction of what it was during the financial crisis over a decade ago and down 18% from 2018, according to property information company ATTOM Data Solutions. However, there were still nearly 300,000 foreclosure filings in the first half of 2019. Foreclosure has devastating effects, not only on your housing situation but also on your finances. A foreclosure will send your credit score plummeting and will make it incredibly difficult to buy, or even rent, for several years afterward.
If you should find yourself facing missed mortgage payments and the potential loss of your home, don't panic. Several options will help you avoid the ramifications of a foreclosure, and many will keep you in your home while you endure a financial hardship.
Read:What Happens If You Default on a Loan? ]
Here are nine things to consider doing when you can't make your mortgage payments:
- Get good advice.
- Make a forbearance agreement.
- Get on a repayment plan.
- Modify your loan.
- Sell your home.
- Sell your home in a short sale.
- Opt for a deed in lieu of foreclosure.
- Avoid scams.
Get Good Advice
Denying the realities of your situation is the worst possible move if your mortgage payments are in jeopardy. Instead, confront the issue head-on, before it's too late. Contact your mortgage provider the moment you know you might miss a payment. It's in your lender's best interest to help you avoid foreclosure, and many have programs that can help you weather a temporary financial downturn.
The Department of Housing and Urban Development is another fantastic resource for counseling and foreclosure avoidance assistance. A HUD counselor can help you understand your options, and can also offer advice on budgeting, credit card debt and other financial problems that may be affecting your ability to pay your mortgage.
Before contacting your lender or HUD, you'll want to gather your financial documents, much like you did when you purchased your home. This will include pay stubs, bank and investment account statements, tax returns, your mortgage information and a statement detailing your financial hardship.
Weigh Your Options
It's possible to work with your lender and find a new payment option that works for you, whether that's for the short or long term. Consider the following four options that can keep you in your home for longer: refinancing, a forbearance agreement, a repayment plan or a loan modification.
Refinancing your mortgage is an excellent option if you aren't already stretched to the max financially, meaning your credit score and overall income are still strong. By refinancing, you could earn a better interest rate and a more affordable monthly mortgage payment. If you have enough equity in your home, you may even qualify for a cash-out refinance loan to help pay off more expensive credit card debt.
A mortgage forbearance agreement provides a solution to short-term financial issues. The agreement typically stipulates that the mortgage lender will not initiate foreclosure proceedings while you adhere to a plan to become current on your loan. Lenders may agree to reduce or suspend payments during the specified forbearance period, but the borrower will ultimately be responsible for catching up on missed payments, including principal, interest, taxes and insurance.
If you're already behind on your mortgage, you may be able to negotiate a repayment plan with your bank before going to foreclosure. With this approach, and your lender's approval, your overdue amount (plus your regular mortgage payment) is spread across a specified period – usually 3 to 6 months – until you become current and proceed as usual.
If your situation is more serious, a mortgage loan modification may be in order. A loan modification means working with your current lender to permanently restructure your existing mortgage to create a more affordable payment. This can include changes to the interest rate, switching from a variable rate to a fixed interest rate, or extending the length of the loan term to reduce the monthly total. Loan modifications are usually only available to those that can prove they're experiencing a significant hardship, and borrowers must submit financial documentation and complete a trial period to qualify.
Leaving Your Home
If you find that your situation makes leaving your home unavoidable, there are essentially three ways to do so: a regular sale, short sale or deed in lieu of foreclosure.
If you're not yet behind in your mortgage and your home is worth more than what you owe, you can list your property for sale as you normally would. This is a more viable option for homes in market-ready condition in locations with healthy buyer demand, and you will need to keep up with mortgage payments until the sale is final.
If you are behind or underwater on your mortgage – meaning the value of your home is less than the total due on your loan – you may need to enter a short sale. In this scenario, the lender agrees to let the borrower sell the property for less than what is owed. The bank will lose money in the process, but for many lenders a short sale where they recoup the majority of their dollars is preferable to a foreclosure. For the seller, the primary advantage is that short sales do less damage to credit reports than full foreclosures. Plus, a short sale also allows you to stay in your home until the transaction closes.
Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is a last-resort option for borrowers unable to fulfill the terms of their home loan through other means. In this scenario, you essentially hand over the property deed to your lender and are released from all obligations of the mortgage. While you'll relinquish your home and any value associated with it, a deed in lieu of foreclosure allows all parties to avoid the lengthy and expensive foreclosure process. Also, deed in lieu of foreclosure is typically a far more private, and therefore less embarrassing, option for the homeowner.
Financial predicaments often make people vulnerable to nefarious characters willing to promise a quick fix to a dire situation. Be wary of entities offering assistance in exchange for an upfront fee or making too-good-to-be-true claims that guarantee mortgage relief. Never sign legal documents without the advice of an attorney, and do not listen to a company that advises you to stop paying your mortgage or asks you to re-route your payment to an unknown party.
Falling short on your mortgage can be a crushing emotional blow, but by confronting the situation early and surveying your options, you'll be able to make the right decisions for your home, your family and your finances.