Help For Homeowners Late on Their Mortgage Payment
There are many options for homeowners who are having difficulty making their mortgage payments. What are they and how can they work for your situation?
Loan modificationThe lender adjusts the terms of your loan by either lowering your interest rate, making your interest rate flat if you’re on an adjustable-rate mortgage (ARM), or extending the loan term from 30 years to 40 years. The goal is for your monthly payment to be 31% of your total monthly income (before tax). To get this started, call your lender and ask them to consider a HAMP (Home Affordable Home Modification Program). This works best if you are currently employed in some capacity.
patience: The lender takes what is past due including fees and breaks it down into smaller payments over several months to help you catch up. Beware – you still have to make regular mortgage payments on top of that. This is mostly for those with short term job loss or short term illness who are overdue but are now able to catch up or will be in the near future. To get started with this option, contact your lender and tell them your situation but make sure you can pay the amount in addition to your regular monthly payment.
short saleSell your home with an agent even if you owe more on it than it’s currently worth. The lender pays the agents’ commissions and the bank will have to agree to the sale price. You must be able to show 3 things: you have no assets (except for your 401k), you have a hardship, and you’re delinquent on your mortgage or will soon be late if you don’t sell. Hardship can be illness, death of a loved one, divorce, unemployment, increased payments (due to ARM), severe debt, or a job transfer. Note: Some lenders like you go through the loan modification process first, and the new HAFA program is scheduled to begin in April 2010.
Deed in lieu of mortgage: Often referred to as amicable foreclosure. This must be approved by your lender and getting their approval can be difficult. How it works? The lender lets you send them the keys and sign the contract to the bank. This could be bad for your credit. Call the lender and ask them to explain their process. The bank can still prosecute you for a deficiency judgment at a later date.
Rental deedFannie Mae and Freddie Mac subsidized loans may allow this option. Here you sign the title deed and they let you rent the property from them for a negotiated monthly rent.
Seizure of the mortgaged property: the bank recovers the property. The house has been sold in an attempt by the bank to recoup some of what is owed to it. The bank can pursue a judgment for the deficiency.
The first step you should take if you are having trouble paying your mortgage is to contact your lender…let them know. Ask them to consider you in the HAMP Loan Modification Program. Then, contact a free consumer debt counselor and get their help in reviewing your financial situation so you know how much you can afford.
If you are unemployed and have no way to cover your mortgage, consider getting roommates or renting out your home and finding something more affordable. A short sale may enable you to get out of your payments and rent less so you can buy again. Housing assistance programs exist in most areas to provide financial assistance for housing expenses. Ask a friend or relative to let you stay with them until you can get back on your feet. The key is to be proactive, know your options and work with the lender. If you decide to do a short sale, get a trained real estate agent. Anyway, the worst thing to do is nothing. Do not allow your home to go into foreclosure, as this can be emotionally painful and very damaging to your credit. There are plenty of other options.
