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.
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.
Ensure a quick sale.
Selling your home quickly not only allows you to move on with your life, it also means fewer days of keeping your home in pristine condition and leaving every time your agent brings prospective buyers for a tour. According to real estate information company Zillow, the best time to list a home for sale is on a Saturday between May 1 and 15; homes listed during those times sell six days faster and for 0.7% more than the average annual home price. But how fast your home actually sells, and at what price, depends on factors beyond timing. Here are 10 secrets to selling your home faster, no matter when you list it.
Updated on March 20, 2020: This story was published at an earlier date and has been updated with new information.Pick a selling strategy.
Pick a selling strategy.
Before putting a for sale sign in your yard, it's important to pick the selling strategy that will work best for you. The for-sale-by-owner option may be best if you feel confident in your ability to market the home and negotiate. If your time is better spent on other details, a real estate agent could be best. If you need to sell the home quickly, you may want to inquire with an iBuyer, an entity that can make the deal close faster than the typical homebuyer. You should feel confident in the selling strategy you choose, and avoid switching from one to the other while your house is on the market. Buyers could be turned off by the constant changing of circumstances.Invest in a professional photographer.
Invest in a professional photographer.
According to NAR's 2019 Profile of Home Buyers and Sellers, 44% of recent buyers started their search online. Of those, 87% found photos very useful in their home search. If your listing photos don’t show off the features of your home, prospective buyers may reject it without even taking a tour or going to the open house. Hiring a professional photographer and posting at least 30 photos of your home, inside and out, is a good way to attract buyers. Photography is often free for home sellers, as shoots are often conducted at the expense of real estate brokers as part of marketing the property.Clean everything.
(People Images/ Getty Images)
Nothing turns off buyers like a dirty house. Hire a company to deep clean if you can’t do it yourself. “When the (home) is on the market, no matter what time of day or night, it should be clean and neat,” says Ellen Cohen, a licensed associate real estate broker with real estate brokerage Compass in New York City.
Key places to clean while your home is on the market include:
- Kitchen countertops.
- Inside cabinets and appliances.
- Floors and room corners where dust collects.
- Bathroom counters, toilets, tubs and showers.
- Inside closets.
- Windows, inside and out.
- Scuffed walls, baseboards and doors.
- Basement and garage.
Depersonalize the home.
Remove all your family photos and memorabilia. You want buyers to see the house as a home for their family, not yours. Remove political and religious items, your children’s artwork (and everything else) from the refrigerator and anything that marks the house as your territory rather than neutral territory. The same goes for any collections such as figurines, sports memorabilia or kids' toys that can make a buyer think less about the house and more about you. Family photos can be replaced by neutral art or removed entirely – just be sure to remove any nails and repair nail holes where any hanging photos used to be.Let the light in.
Let the light in.
People love light and bright, and the best way to show off your house is to let the sunshine in. Open all the curtains, blinds and shades, and turn lights on in any dark rooms. If the natural light situation is lacking in any room, strategically place lamps or light sources throughout to set the mood. And while your house is on the market, open all curtains and turn on lights every time you leave your house for work or errands in case you get word that a buyer would like to tour the space before you get home.Be flexible with showings.
Be flexible with showings.
Buyers like to see homes on their schedule, which often means evenings and weekends. Plus, they want to be able to tour a home soon after they find it online, especially in a hot market where they're competing with other buyers. If your home can be shown with little or no notice, more prospective buyers will see it. If you require 24 hours’ notice, they may choose to skip your home altogether. "That's one less person who gets to see the property," Cohen says. Be ready to leave quickly as well – if you're still cleaning up or hanging around outside when the buyer arrives, it can make for an awkward interaction.Set the right price.
Set the right price.
No seller wants to leave money on the table, but the strategy of setting an unrealistically high price with the idea that you can come down later doesn’t work in real estate. Buyers and their agents have access to more information on comparable homes than ever, and they know what most homes are worth before viewing them. A home that’s overpriced in the beginning tends to stay on the market longer, even after the price is cut, because buyers think there must be something wrong with it. "Pricing correctly on the lower side tends to work much better," Cohen says.Remove excess furniture and clutter.
Remove excess furniture and clutter.
Nothing makes a home seem smaller than too much big furniture. Rent a self-storage container or a storage unit and remove as much furniture as you can. It will immediately make your home seem calmer and larger. Remove knickknacks from all surfaces, pack them away and store the pieces upon which you displayed them. Take a minimalist approach to books, throw rugs and draperies, and clear off your kitchen and bathroom countertops, even removing appliances you normally use. If you can scale down the contents of your closets, that’s even better, because it makes the home's storage space look more ample.Repaint in neutral colors.
Repaint in neutral colors.
A new coat of paint will do wonders to freshen up your home, both inside and out. This is the time to paint over your daughter’s purple bedroom, nix the quirky turquoise bathroom and cover up the red accent wall in your dining room. Busy wallpaper can also turn off potential buyers. Your goal is to create a neutral palette so buyers can envision incorporating their own personal touches in the home. "You just want people to see the space for what it is," Cohen says. Rather than a stark white, consider neutral shades of gray, taupe and cream on the walls.Spruce up the front of your home.
Spruce up the front of your home.
You’ve heard it 100 times before, and it’s still true: Curb appeal matters. You don’t get a second chance to make a first impression. A new or freshly painted front door, new house numbers and a new mailbox can breathe life into your entryway. Fresh landscaping and flowers in beds or in pots also enhance your home’s first impression. Trim trees and bushes, tidy up flower beds, remove dead leaves from plants, clear out cobwebs from nooks near the entrance and pressure-wash walkways, patios and decks. Leave the outdoor lights on, too, because prospective buyers may drive by at night.Here are 10 tips to sell your home faster:
Here are 10 tips to sell your home faster:
- Pick a selling strategy.
- Invest in a professional photographer.
- Clean everything.
- Depersonalize the home.
- Let the light in.
- Be flexible with showings.
- Set the right price.
- Remove excess furniture and clutter.
- Repaint in neutral colors.
- Spruce up the front of your home.
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Larson has appeared in The New York Times, Wall Street Journal, The Real Deal and other top-tier outlets for her industry insights and expertise. Recognized among her peers for her eye for design, she has bought, renovated and sold apartments and homes in New York City, San Francisco, Chicago and Nantucket, providing her an acute insight into the needs of buyers and sellers alike.
Lisa holds a Master's degree in History and was a member of the Division I cross-country and track teams at the University of California, Berkeley. Larson also remains actively involved with various charitable foundations, neighborhood associations and at both of her children's schools, and serves as a director on the board of the USA Track & Field Association.