Help for homeowners who are late on their mortgage payments
There are many options for homeowners who are struggling to make their mortgage payments. What are they and how can they work for your situation?
Loan Modification: The lender changes the terms of your loan by lowering the interest rate, making the interest rate fixed if you have an adjustable-rate mortgage (ARM), or extending the length of your loan from 30 years to 40 years. Aim for your monthly payment to reach 31% of your gross (before taxes) monthly income. To get started, call your lender and ask them to consider your participation in HAMP (Housing Affordable Modification Program). This works best if you are currently employed in some capacity.
patience: The lender takes what’s overdue, including fees, and breaks it up into smaller payments over several months to help you catch up. Be careful – you still have to make your regular mortgage payment on top of that. This is mostly for those with short-term job loss or short-term illness who have fallen behind but can now catch up or will catch up in the near future. To get started with this option, call your lender and let them know your situation, but make sure you can afford the payment PLUS your regular monthly payment.
Short sale: You’re selling your house with an agent even though you owe more on it than it’s currently worth. The lender pays agents commissions and the bank will need to approve the sale price. You need to be able to show 3 things: You have NO assets (other than 401k), you are struggling and you are late on your mortgage or will soon be late if you don’t sell. A hardship can be illness, death of a loved one, divorce, unemployment, payment increase (due to ARM), overwhelming debt, job transfer. Note: Some lenders like you must go through the loan modification process first. The new HAFA program is due to start in April 2010.
Deed in lieu of foreclosure: Often called a friendly foreclosure. This must be approved by your lender and getting their approval can be difficult. How it works? The lender allows you to send them the keys and sign the deed at the bank. This can be detrimental to your credit. Call your lender and have them explain the process to you. The bank can still pursue you for a default judgment at a later date.
Deed of rent: Loans backed by Fannie Mae and Freddie Mac may allow this option. This is where you sign the deed and they allow you to rent the property back from them for an agreed monthly rent.
Foreclosure: The bank collects the property. The house is being sold in an attempt to get the bank to recover some of what is owed to them. The bank can pursue you for a default judgment.
The first step you should take if you are having trouble paying your mortgage is to call your lender… Let them know. Ask them to consider you for the HAMP loan modification program. Then call a free consumer debt counselor and get their help reviewing your financial situation so you know what payment you can afford.
If you’re unemployed and can’t afford your mortgage, consider finding roommates or renting out your house and finding something more affordable. A short sale can allow you to get out of your payments and rent less until you can buy again. Most areas have housing assistance programs that offer financial assistance for housing costs. Ask a friend or relative to let you stay with them until you get back on your feet. The key is to be proactive, know your options and work with your lender. If you decide to do a short sale, get a trained real estate agent. In any case, the worst thing you can do is do nothing. Don’t let your home go into foreclosure, it can be emotionally traumatic and very damaging to your credit. There are many other options.
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