Here Are Your Options if You Can't Pay Your Mortgage

Not being able to pay your mortgage is a really scary thing. No one ever imagines they will find themselves in this situation when they buy a house. But the reality is, this can happen to almost anyone as a result of a job loss, medical issue, or other life problem.

If you don't have enough money in your checking account to pay your home loan each month, you should not panic right away. You do have options to explore. Here are four of them, along with the pros and cons about each one.

1. Talk to your mortgage lender about a payment plan

The single best thing to do if you can't pay your mortgage is to reach out to your lender and ask what your options are. Many mortgage lenders are willing to work with you by allowing you to put your loan into forbearance for a period of time or to come up with some other arrangement to temporarily lower your bills.

Lenders do not want to take your house, so if they can help you avoid that happening, they often will -- especially if you have a solid history of paying your loan on time and if your financial struggles are likely to be temporary ones.

2. Refinance your loan if you're eligible

If you are able to do so, consider refinancing your home loan to reduce your monthly payments and to bring your costs in line with what you can afford.

Typically, refinancing can help you reduce your monthly payments if you can qualify for a lower interest rate than you currently have. But you may also be able to reduce monthly payments by getting a new loan with the same rate -- or even with a slightly higher one -- if you extend your payoff time.

Refinancing to a loan with a longer repayment timeline will cost you money over the long run, since you'll pay more in interest due to the longer time duration you're paying it. This is often true even if you do manage to lower your rate.

But if you truly cannot afford your current loan payments and refinancing would give you some breathing room, this can be an option worth considering. You will, however, need to have good credit and solid income to refinance, which may not be the case for you if you've been struggling to pay your bills for a while.

3. List your property for sale

Selling your house could help you escape your mortgage payment, but there are some big caveats. First, you'll still need a place to live, so you'll want to be sure you would be able to find a place that would be more affordable before you sell. Second, you'll need to be able to generate at least enough from the sale to pay off your mortgage in full -- and to pay any other fees associated with the sale, such as closing costs.

If you cannot sell for enough to pay all you owe, you may be able to arrange a short sale with your lender. This would mean the lender agrees to let you sell for less than the full balance and pay off what you can with the proceeds. This will damage your credit, though, and in some states, lenders could try to come after you for the difference between what you sold the house for and what you paid back (although you can try to get the lender to agree in writing not to do that as part of the short sale agreement).

4. Let the lender foreclose

Finally, your last option is to let the lender foreclose on your home. This would mean the lender takes your house and sells it to satisfy your debt. Your credit will be damaged by this and, by the time you pay costs and fees, chances are good you will lose any equity you may have had.

If the lender doesn't get enough money from the foreclosure sale to pay off the loan balance, the lender could also try to collect unpaid funds from you if your state allows deficiency judgments.

Foreclosure should be a last resort, and you should explore all other options first before going through this process. You do have other potential solutions as mentioned on this list, so give them a try to see if you can avoid having the bank take your home.