I Can’t Pay My Mortgage Anymore

Will they foreclose my home if I can’t pay my mortgage?

Having been in the real estate business for several years now, this is a question we have heard too many times. It is not often the best subject to talk about, losing a home, but sadly many people find themselves in this quagmire.

The thought of foreclosure is a frightening one. It’s one of those things that keeps people up at night, perspiring throughout the day and knocking back energy shots in between.

On the bright side, there are a couple of solid options available to anyone faced with the prospect of losing their home (and credit standing) because they are unable to meet their monthly payments.

• Forbearance is a Nice Option

If you find yourself in a can’t pay my mortgage situation, one of the first options you need to think about is forbearance. This is when you are afforded a temporary window of time to pay your mortgage at a lower late or to stop your payments temporarily.

It’s a great option, but there is a caveat to it.

Forbearance is only applicable if your financial hardship is temporary – for instance, losing a job, illness or injury that resulted in high healthcare costs, or instances when you may be a victim of a natural disaster.

In such a case, you can talk it out with your lender who can then reduce or suspend your mortgage payments for a given period of time. Following the expiration of that window, you will have to play catch up by paying up the amount due, in addition to making your regular payments.

• So is a Repayment Plan

A repayment plan is a structured arrangement between the homeowner and lender for the former to make up missed mortgage loan payments over a given period of time.

You can work out a repayment plan with the lender on how long it will take you to repay the overdue amount. However, make sure you clearly understand the requirements of the plan before entering into any agreement.

Because at the end of the day, you want to make sure this works for you, as much as it does for the lender.

• Consider Refinancing your Mortgage

Loan refinancing refers to the process of taking on a new loan to replace your current one.

Mortgage rates change from time to time. If the rate you are paying is higher than the rates offered on new loans, refinancing can lower your monthly payments considerably.

One of the options involved in refinancing is switching from a variable to a fixed interest rate. This is a nice approach if you want to lock in on a lower rate.

Refinancing your mortgage will see your monthly payments drop, but chances are you will end up paying more in the long run. These costs could be in the form of not just the interest, but also closing costs like application, appraisal and origination fees, as well as title search and insurance costs.

• Get a Loan Modification

Modifying your loan changes the terms of your current loan to make the payments more affordable.

The Home Affordable Modification Program might have expired in 2016, as will the other government-sponsored HARP (Freddie Mac and Fannie Mae Home Affordable Refinance Program) at the end of 2018, but you might still be able to modify your loan.

HARP loans that are in default or about to be in default could be eligible for the new program that replaces HARP. It’s called the Flex Modification program and it aims to cut down the borrower’s mortgage payment by 20%.

You could also inquire from your lender who might have their own proprietary program.

Loan modifications are not as common as they were during the post 2008 financial crisis, but it might be a good option if your lender is open to it.

• Should I Declare Bankruptcy if I Can’t Pay My Mortgage?

As a matter of fact, you can. For many people, bankruptcy is a word that sends shivers down the spine. But turns out, it might actually be a good thing for you.

How?

Well, the silver lining in filing for bankruptcy is that it might just be the fresh start you need to restructure your finances. It can be extremely useful, particularly Chapter 13 which allows you to retain your home without the risk of foreclosure.

Filing for Chapter 13 bankruptcy prohibits creditors from repossessing your home (and ultimately selling it).

The major downside with this move is that your credit takes a serious hit in the process. It can be a blot on your credit report for a minimum of seven years.

All is not lost, though, considering you might qualify for prime credit mortgage financing within two years of filing for bankruptcy.

• Short-sell your Home

Short-selling is when the lender allows the homeowner to sell the property for less than the amount owed on the mortgage.

If the amount you owe is more than the home is currently worth, and you have a documented history of financial affliction that makes it virtually impossible to meet your payments, then short-selling is an alternative.

The sales proceeds will go to the lender, obviously, although the distressed homeowner may receive relocation assistance.

Your headache compounds when the amount you owe the lender exceeds the sale price, as you are liable for covering the deficiency. In some states, the lenders are eligible to sue the borrower for this deficiency, and Uncle Sam might tax it as a personal income. In these cases, you should try to get a Deficiency Release Agreement if you can.

• Request a Deed in Lieu of Foreclosure

If I can’t pay my mortgage, the last thing I want to hear is that I will lose my home. Sadly, this solution doesn’t guarantee otherwise.

A deed in lieu of foreclosure involves surrendering your property to the lender, albeit voluntarily. Unlike a short sale which doesn’t guarantee you a cut from the sale proceeds, one upside to taking this option is that it could see you get some money if you happen to have equity in your home.

As well, you might have a say over the forfeiture timing, not to mention that it looks better on your credit history.

But it’s not all roses and fairies. A deed in lieu might have tax implications, and it gets complicated if you have any other loan on the property.

• Sell the Home

What?

Sell the home!

A mortgage does not exclude you from selling your property. In fact, it is a pretty common occurrence because relocation needs may arise for one reason or the other, and the homeowner is not bound to stick around until they complete their payments.

If you find it difficult to meet your payments, selling the home may turn out to the best move you make. And doubly so if, in addition to the sale proceeds, you manage to purchase a nice, less expensive home, and you move to a place where property and income taxes are considerably lower.

Sell to an investor.

If you have let things go for too long, an investor may offer you a way out, especially if your house needs repairs or upgrades to make it sellable.

What does an investor offer? A quick sell, generally in less than two weeks. Saving your credit by making up your past due payments. Making the needed repairs. And no closing costs, since the investor pays those costs.

An investor will generally not get you the most money for your home, but they may be able to quickly get you out of a deep hole.

Think about it.

Last Word

Buying a home is one of the biggest decisions we get to make in life. For this reason, it is important to purchase a home when you are fully ready, not because you came across a property on the market that looks every inch your dream home. Not because home values look enticing at the moment. And not because other people are pressuring you to. But because you are financially prepared to pay for it.

That way, you won’t end up regretting the purchase.

But life happens. And in the unlikely event you find yourself in a can’t pay my mortgage scenario, any one of these options might be a sound solution.

Don’t Let Things Get Out of Hand