When you initially signed your mortgage, you were no doubt advised to run the numbers and make sure you weren't getting in over your head. But what if your circumstances have changed -- say, you've lost your job, or taken a dip in income -- and you're suddenly struggling to make your mortgage payments on schedule? At that point, you need serious help. And here's how to get it.
Contact your lender
It's not just people who take on too much house who struggle to pay their mortgage month after month. Sometimes, even responsible borrowers fall into that hole. If this happens to you, it's imperative that you reach out to your mortgage lender and explore your options for relief. That way, you might be able to avoid being late with your payments, or missing payments entirely. Both events will make a black mark on your credit record, and if you stop paying your mortgage altogether, you'll risk losing your home to foreclosure.
What assistance might your mortgage lender have to offer? Depending on the circumstances at hand, your lender might agree to let you hit pause on your mortgage payments for a limited period of time while you work through the financial difficulties you're facing. It's an option known as forbearance, and it applies to other types of debt, like student loans, as well.
You may also be eligible for what's known as a loan modification program. This will allow you to change the terms of your mortgage to reduce your monthly payments, thereby making them easier to keep up with. That lower monthly payment could be achieved by your lender simply agreeing to eliminate a portion of your outstanding home loan balance, or by granting you a lower interest rate on your mortgage. Or your lender might extend the term of your mortgage so that you're stretching your outstanding balance out over a longer period of time, thereby lowering your monthly payments.
Why might a lender agree to any of these options? It's simple: Your lender wants its loan repaid. It doesn't want to deal with the hassle of a short sale or foreclosure, so it can be worthwhile to reach out and see how flexible your lender is willing to be.
Refinancing is a possibility, too
If your lender is unwilling to grant you some leeway on repaying your mortgage, or you'd rather go a different route, then refinancing is another option to consider. Refinancing means swapping an existing loan for a new one. When you refinance a mortgage, you can replace your home loan with a new one that comes with a lower interest rate, thereby lowering your monthly payments. Refinancing makes sense if your credit is solid, because if it is, you're more likely to qualify for a favorable rate.
When all else fails, try to sell
If you're struggling to make your mortgage payments due to a temporary financial hiccup, the above options can help you stay afloat and avoid being late on your payments. But if you expect your financial problems to be long term, or you've made the moves above and they haven't helped, then you may have no choice but to sell your home and unload that obligation.
Now, if your home is worth at least as much as your outstanding mortgage balance, this shouldn't be a problem. But if you're underwater on your mortgage -- meaning you owe more on your home than what you can sell it for -- then you may have no choice but to pursue a short sale. In a short sale, your lender agrees to sell your home for whatever the market allows and write off your remaining mortgage balance rather than hold you liable for it. A short sale will hurt your credit, but the damage will be less substantial than that caused by a foreclosure, so it may be your best choice.
Another option you might consider is renting out part of your home temporarily until its market value comes back up to avoid a short sale. This is feasible if your home contains a separate living space, like a finished basement, that's suitable for a tenant. Having that rental income could enable you to stay current on your mortgage while you wait things out.
Don’t fall behind
Falling behind on your mortgage payments could hurt your credit and put you at risk of losing your home. Before you resign yourself to that fate, see whether your lender is willing to work with you, and look into refinancing. And if those options don't help, aim to unload that property in the least financially damaging way possible. That way, you can work on rebuilding your savings and boosting your income so that you're able to buy another home with mortgage payments you can afford.