You were soooo excited when you finally closed escrow on your home and got the keys! You moved in and spent the next couple of years making it feel like home and creating wonderful memories.
But what used to give you so much joy now causes nothing but anxiety and stress.
Life has thrown you a few wicked curve balls and you’re struggling to keep up with your mortgage. The mortgage bills pile up in the mailbox and you’ve all but stopped answering the phone for fear it’s the lender again.
I’ve been right where you are, and I know it’s a scary place to be.
Back in 2008, my hubs went to work only to find that the doors had been chained…CHAINED! The company had closed up shop over night with no notice or warning to the employees who depended on them.
At first we thought we were ok between our bit of savings, retirement accounts and credit cards.
But as I am sure you know, EVERYONE was losing out during the recession of 2008…we were not spared. And EVERYONE was out looking for a job.
More and more time passed with no jobs in sight and we eventually used up every single penny we had. The money had run bone dry. To say I was scared was an understatement…I was terrified.
Thoughts like, “what are we going to do? where are us and the kids going to live? I picked these floors out and designed this kitchen…I don’t want to leave my home!”, kept me awake at night.
There were no assistance programs and “loan modifications” were unheard of back then. We felt like we had nowhere to turn.
YOU HAVE OPTIONS
I know it feels like the world is falling in on you right now and its hard to catch your breath. But know that times are very different now and you have options. But girl, the earlier you take action, the more options are open to you! So get a move on! You can get through this!
First things first…
Before we dive in! It doesn’t matter if your situation is temporary or a full on emergency you always want to communicate!
DON’T HIDE!!! I repeat…DON’T HIDE!!!
I beg you PLEASE, call and talk to your lender…let them know what is going on. Don’t be scared of them. While they aren’t going to be all warm and fuzzy about this, it is in their best interest to help you out…they know this, they want their money and working with you is the best way to get it.
Imagine if one of your besties owed you money and all of a sudden they stopped making payments, stopped taking your phone calls/texts, and are were harder to find than a good man.
Wouldn’t you be upset? You would’ve probably been receptive to hearing their case if they would’ve just called you.
Yea, it’s the same with your lender.
They’re the first person you should call when you know your money is about to get funky.
One, because its in their best interest to figure out a solution, if they have to foreclose on the home they are sure to lose money.
And two, it’s a pain in the arse to try to repossess a home and go through the foreclosure process…it takes time and money. They are in the lending business…not the real estate business.
You’ll be surprised at the solutions that may be available to you, but only if you’re proactive about this. CALL YOUR LENDER!
Ok, with that out of the way…lessgo!
In order to know which options are best for you, you should decide if your situation is just a temporary setback or permanent.
If you had a slight hiccup in your finances, such as a large unexpected bill, and you just need a little breathing room until your money catches up…your situation is most likely temporary. Skip to the first section below.
If you’ve been laid off or received a permanent reduction in your income, or are going through a ugly divorce or an unexpected death…your situation may be permanent. Skip to the second section below.
If you already know your situation is an emergency, meaning you’ve missed multiple payments, CANNOT afford the mortgage under any circumstances, or have NO income coming and little to NO savings…skip to the last section.
SECTION 1: IF YOUR SITUATION IS TEMPORARY
Because your situation is temporary and you know your finances will bounce back in a couple months time, your goal here is simply to get some breathing room. Be prepared to discuss your financial situation with your lender and provide a written statement detailing your financial hardship and any other documentation they require.
- Forbearance – Mortgage forbearance is an agreement made between you and the lender where the lender agrees to lower or temporarily skip your mortgage payments for a specific period of time. Once the time is up, you go back to your monthly payments plus the additional amount it will take to bring your loan current.
This option works well for a temporary money glitch and will get you the short-term relief you need until your money situation improves.
- Repayment Plan – A repayment plan basically allows you to make up any missed payment by spreading them out over a period of time. Let’s say you’re behind $2,000 and your lender gives you 4 months to catch up. That would mean you would take the $2,000 and divide it evenly over the next 4 months (2,000/4 = 500) and add that to your existing monthly payment.
So if your current mortgage is $1,000, you would add the $500 repayment amount to arrive at your new payment until the delinquent amount is owed, in this case $1,500 (1,000 + 500 = 1,500).
Be careful with entering into a repayment plan! You need to be 100% sure that your situation is temporary and will turn around quickly. As you can see, your payments will be even higher than normal over the repayment period…which can get you in even steeper trouble if you aren’t prepared for it. Make sure your money is ready to bounce back!
SECTION 2: IF YOUR SITUATION IS PERMANENT
When you experience a permanent setback, its best to find a strategy that will offer a permanent reduction to your mortgage. The goal is to have your mortgage be affordable for the long term. Be prepared to discuss your financial situation with your lender and provide a written statement detailing your financial hardship and any other documentation they require.
- Loan Modification – Loan modifications have become increasingly popular since the recession of 2008. Banks have wizened up realizing that it’s in their best interest to help borrowers alleviate financial pressure to avoid foreclosure…they’re in the lending business, not real estate!
In short, a loan modification is where your lender agrees to restructure your loan, typically by extending the length of the term, reducing the interest rate, moving from a variable rate to a fixed rate, or a combination of these. This is a good solution to permanently lower your payments to an affordable range.
There are multiple different types of loan modifications available including those offered by your institution, as well as those offered by Fannie Mae and Freddie Mac (Flex Loan Modification Program). To see what is best suited to your situation, take advantage of federally approved foreclosure prevention counseling services. You can get FREE foreclosure avoidance counseling through a HUD-approved housing counselor. Find one HERE.
- Refinance –If you have plenty of advance notice before you finances take a nosedive, then a refinance might be a good option for you. Sometimes you can refinance and take advantage of lower rates or get into a loan with a longer term thereby lowering your monthly payments permanently.
A few things to note, 1) Your credit needs to be in good standing in order to qualify for a refinance…if that’s you then go for it! 2) You will have to come up with the cash to pay any closing costs and refinance fees. 3) Lastly, a refinance can take 1-2 months to complete, so you would need to make sure you’re able to keep up with your mortgage payments until then.
SECTION 3: IF YOUR SITUATION IS AN EMERGENCY
If you have missed more than a few payments, or have no income coming in for the foreseeable future, or know that you are in the middle of a financial crisis, then your goal is to do what you can to survive! Often times this might mean that you will lose your home, but the stress will leave right along with it.
- Sell Your House – This is going to happen one of two ways, if you are preparing for financial disaster that you know is headed your way, get your house on the market as soon as possible! If you are able to sell it in a standard sell, then you avoid the stress and headache of a short sale AND the negative impact to your credit from any missed payments.
The second way is to do a short sale, which just means that the bank agrees to allow you to sell your home for less than you owe and forgive the difference. Short sales are much more common place today, but make sure that you hire a realtor that specializes in short sales, this is not the time to be cheap!
They will have your best interest in mind and help you navigate the choppy waters. They may be the difference between the bank accepting your short sale price or you heading towards foreclosure.
- Deed In Lieu – A deed in lieu of foreclosure is when you deed your house back to the bank instead of going through the foreclosure process. This is a last resort option when you are unable to come to any agreements with the lender, come up with the delinquent payments, or improve your financial situation.
While there are the benefits of avoiding the additional stress of being evicted and enduring the auction of your home, the negative impact will remain on your credit report for 7 years barring you from getting another conventional home loan for up to 7 years, a FHA loan for up to 3 years or a VA loan for up to 2 years.
- Bankruptcy – If your situation has deteriorated to the point of no return and you find that you can’t keep up with ANY of your financial obligations, it may be time to consider bankruptcy.
Bankruptcy is simply a common program used to as a last resort to eliminate or reduce your debt. Because all situations are unique, I urge you to speak to a specialized bankruptcy professional!
Don’t take this decision lightly as it involves an extended process and can leave lasting effects. It will remain on your credit report for 10 years. But typically those that file bankruptcy are able to rebuild fairly quickly after everything has been discharged.
I know it sounds scary, but it’s not the end of the world. You will conquer this too. Get that fresh start!
It’s a scary thing to realize that you can no longer make your mortgage payments. And facing the prospect of losing your home can be downright horrifying…trust me, I KNOW. But don’t allow your fears and insecurities to paralyze you.
Acknowledge your situation, plan to do better and move one. Know that you are not alone AND you have options! The more proactive you are about your situation, the more options you’ll have to get things back on track. You can do this girl!