Can't Afford Mortgage Payments? Here's What You Can Do

Being unable to make monthly mortgage payments can be a scary position to be in, with foreclosure looming right around the corner.  There are more than a few options to consider before that point, however.  Here are some suggestions inspired by one of our favorite sites, Lifehacker.

Disclaimer: We are not attorneys, mortgage lenders, or financial advisors, but we recommend you reach out to a qualified professional. Here are some we've worked with before.

Refinance or Modify Your Existing Loan

A good first step to take in this situation is to look into modifying your current loan or take on a new loan to replace your current one (refinancing).  This option will not be a possibility for every homeowner, nor will it always be an easy process, but it is a good place to start.

Contact your loan servicer or a mortgage lender as soon as it begins looking like you can't make your monthly mortgage payments, as the longer you wait, the fewer options you will have.

Here are the most likely options a loan modification or refinance will have:

Reduce Your Interest Rate

Refinancing your interest rate is step that can easily cut back on your monthly mortgage payments.  In fact, refinancing by even 1% can save you as much as $2,000 a year, according to Yahoo Homes.

Locking in a low rate may include switching from a variable to a fixed interest rate.

Closing costs and lender fees can be a big deterrent for this procedure.  Thankfully, we have a great relationships with several lenders here in Chicago - who can greatly reduce these costs.  Here's how to contact them.

Extend Your Loan Term

Extending your loan term will almost always be accompanied by a rate reduction, reducing the cost of your monthly payments.  Know  that in the long term, this does mean you'll most likely be paying more total cost with a rate extension.  This solution does work well for the short term, however.

Making Home Affordable Modification Program (HAMP)

Some homeowners may be eligible for a loan modification under the Making Home Affordable Modification Program, if you fit these some of these requirements from the FTC:

  • Your home is your primary residence
  • You owe less than $729,750
  • You got your mortgage before January 1, 2009
  • Your payment on your first mortgage (including principal, interest, taxes, insurance, and homeowner's association dues) is more that 31% of your current gross income
  • You can't afford your mortgage payment because of a financial hardship (i.e. job loss, medical bills)

If your mortgage is greater than the value of your home, getting a refinance may be difficult.  Consider the Home Affordable Refinance Program (HARP) if this is case.  Eligibility requirements can be found on their website.

Forbearance or Repayment Plan

A forbearance or repayment plan are short-term fixes for households who are suffering temporary difficulty with payment that is not anticipated to continue (i.e. a large medical bill, or a temporary leave of absence from work).

If are suffering from temporary financial problems, a forbearance may be a good move for you.  It helps avoid foreclosure by reducing your mortgage payments for a specific, set period of time.  After that period of time, you will play catch up on the loan by making payments towards your missed mortgage payments, alongside making your regular payments.

If you're in the situation of missing a handful of mortgages, setting up a repayment plan with your lender will institute an agreement to pay back the overdue amount over a decided period of time.

Consult a lender to help you with this process.

Deed-in-Lieu of Foreclosure

You will still lose your home in this situation, but you will do so without having to go through the foreclosure process (which is much better for your credit history).

A deed-in-lieu of foreclosure indicates that you voluntarily transfer the property title to the lender.  An application process is necessary in order to get approved for this option, usually including (according to Nolo):

  • A financial statement detailing monthly income and expenses
  • Proof of income
  • Recent tax returns
  • Bank statement
  • A hardship letter

Consult an attorney to help you with this process.

Sell Your Home

It is sometimes possible to sell your home and pay your mortgage in full, depending on the market.

In some instances, homeowners facing foreclosure may turn to creating a short sale scenario.  Short sales involve selling your home for less money than is currently owed on your mortgage, with the lender agreeing to accept this amount due to financial hardship.

Undergoing a short sale will still affect your credit report, but likely not as badly as a foreclosure would.  An approval process for a short sale will include providing documentation.

File a Partial Claim

The US Department of Housing and Development (HUD) will help you a small amount with your payment in the case of a partial claim.  The mortgage insurer may reimburse your interest, late fees, or principle amount.

If you have a FHA loan, your partial claim comes from the US Dept. of HUD, making a one-time payment to make your mortgage current.  Eligibility, according to real estate investor Karen RIttenhouse, includes:

  • The loan is at least 4 months but no more than 12 months delinquent
  • You are able to begin making full mortgage payments

This does include execution of a Promissory Note, and a Lien on your home until you have paid the amount in full.

Rent Your Home

It is sometimes a possibility that homeowners are able to make mortgage payments by renting out the home.  

Know, however, that this is an endeavor that can be rather complicated.  We've previously written about the difficulties of being a landlord, and this list includes the need for some financial reserves to be able to attend to repairs and mishaps in the home, and the possibility of legal disputed.  There are ways to avoid the legal pitfalls of being a landlord, however, and if you've explored all other avenues, this may be an avenue worth pursuing.

We at Real Group Real Estate are not attorneys, mortgage lenders, or financial advisors, but we recommend you reach out to one of our preferred professionals here.

Real Group Real Estate

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Chicago, IL 60614

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