March 18, 2015 by Leave a comment

There’s probably nothing more frustrating or scary than coming to the realization that you can no longer afford your mortgage payment. Even if you’ve been responsible with your money, it only takes one major financial setback to trigger mortgage payment problems. You or your spouse may lose a job, you may go through a divorce, or an illness can limit the number of hours you’re able to work.

Some people don’t want to face the truth, and they ignore the problem until it spirals out of control. However, quick action is required if you can’t afford your mortgage. Selling the home is an obvious solution, but there’s no guarantee you’ll find a buyer, and the house may sit on the market for months as your financial problems worsen.

The problem isn’t going to solve itself. If you can no longer afford your mortgage loan, here are five possible solutions.

1. Refinance and Lower Your Rate

In all likelihood, you won’t be able to refinance if you’re unemployed. However, if you have an income source and you desperately need a lower payment, speak with your mortgage lender to see if you qualify for a mortgage refinance. You’ll have to complete a new mortgage application, and the bank will verify your income and check your credit history. A cheaper mortgage rate and monthly payment can make it easier to afford your mortgage.

2. Rent Out the Property

If you can’t sell the home and refinancing isn’t an option, find a tenant for the property and then move into a cheaper home. Just know that being a landlord can be costly. This is still your home, so you’re still responsible for any major repairs and maintenance. And if a tenant moves out at the end of his lease and you can’t find another one right away, you may be stuck with two house payments. Weigh the pros and cons and then decide whether renting the property makes financial sense. For this to work, you’ll need a cash reserve.

3. Apply for Forbearance

Sometimes, mortgage payment problems are temporary. Maybe you lost a job but you’re actively seeking a new one, or maybe you’re temporarily disabled. If you foresee your financial situation improving within the next six months or sooner and you only require short-term mortgage help, speak with your lender to see if you qualify for mortgage forbearance.

With this option, your mortgage lender may suspend your payments for a period of three-to-six months (depending on the bank), or the bank may temporarily lower your mortgage payment.

4. Request Mortgage Modification

If you can’t qualify for a mortgage refinance, you might meet the bank’s requirement for a mortgage modification. This process works similar to refinancing; but unlike a mortgage refinance where you apply for a new mortgage to replace the old one, a modification adjusts the terms of your existing mortgage loan to create an affordable payment solution.

Unfortunately, modification isn’t available to everyone, and it’s considered a last-ditch effort to save a home. Bank guidelines vary, and some banks will only offer a modification if you’re more than 30 days past due, plus you’ll have to prove the mortgage is a financial hardship. The lender will look at your income and your current expenditures to see if you’re eligible.

5. Short Sale the Property

If you can’t afford the mortgage and you need to sell as soon as possible to avoid foreclosure, another option is a short sale. This is when the bank gives you permission to sell the home for less than you owe. It’s a way out if you owe considerably more than your home is worth. Like a modification and forbearance, you have to prove there’s a financial hardship. Since the lender forgives a portion of your debt, a short sale will slightly damage your credit score, and typically you have to wait two years before you’re eligible to buy a new property.

The situation may feel hopeless, but there are solutions if you can’t afford your mortgage. Speak with your mortgage lender, explain the situation and seek advice on the best way to handle your payment problems.

jforte@totalmortgage.com'

James Forte joined Total Mortgage in 2016, after 18 years of experience as a mortgage originator and manager. Email him at [email protected] #16443


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