what options do you have when you can’t afford your mortgage payments anymore
Keeping up with mortgage payments can become difficult when you’re facing financial problems. Loss of job, crippling debt, or any sort of medical emergency are some of the reasons which can put you in a financial crisis. No matter how bad the situation is, you still have options which can help you through hard times when you can’t afford your mortgage payments anymore.
Check out the following options which can be helpful when you can’t afford your mortgage payments anymore.
See If You Can Refinance Your Mortgage:
Refinancing means paying off the existing mortgage and replacing it with a new one. This practice gives you a chance to get lower interest rates and to shorten the term of the mortgage. And you can use that loan to pay off your current mortgage. According to Casey Fleming, it is vital that the borrowers use this option before missing out any payments.
When you refinance your mortgage loans, you have to follow the same steps you did when you applied for the current loan. You have to fill out the application and provide necessary information. When you submit your application, the mortgage lenders will evaluate your credit score, income, EMI, and debts etc. to determine if you qualify for the loan. Since it’s a mortgage loan, they might assess your house to estimate it’s value. Once they approve your application, sign on the terms and conditions documents.
Refinancing can become problematic in the grand scheme of things too. Some of the reasons being closing costs (the average is 3 to 6% but can get higher if your lender charges above-average fees for refinance transactions. Closing costs also include application, appraisal, and origination fees), loan term (if you extend your loan term can be a disadvantage to refinancing as your new loan gets paid off later than initially prescribed), equity reduction etc. In short, even though refinancing can help you in your hard times, it can cost you more money in the long run.
- Declare Bankruptcy:
This is a word that most people are afraid of. But this is one good option for you if you can’t afford your mortgage payments. Declaring bankruptcy bids you more time to pay your debts. You may be able to stretch time on your payments, reduce the number of payments or save your home from foreclosure. Jen Lee is an attorney who helps to organize businesses and people in taking care of their debts and credits. According to her experience, declaring bankruptcy helped them save their house from foreclosure.
Filing for bankruptcy stops the creditors from seizing your property. According to law, unless the creditors file a case in the court, they are not allowed to take action against people who have gone bankrupt. If you do not declare bankruptcy, they have the right to seize your house and sell it but chapter 13 of bankruptcy prevents them from doing so.
However, this stays in your credit history for years. But on the other hand missed payments, defaulters, lawsuits, and repossessions also remain a part of your history for a long time. But you can also qualify for prime credit mortgage financing again in as little time as two years.
Modify Your Mortgage Loans:
A mortgage loan modification means changing some terms of your loan to make repayments easy. This makes payments more affordable because the lenders may agree to reduce the interest rate, extend the duration of the loan or convert the interest rate from variable to a fixed amount.
To submit an application for loan modification, you need to prove that you are unable to pay the loan due to the financial crisis. You also need to complete a trial period to demonstrate that you can afford the new monthly payments and provide all the necessary documents required.
Home Affordable Modification Program sponsored by Government expired in 2016 and the Freddie Mac and Fannie Mae Home Affordable Refinance Program were set to expire in 2017. But there might be other ways for you to modify your mortgage loans when you can’t afford them. The New Flex Modification Program replaces HARP and aims to reduce borrower’s mortgage by 20 percent. This program provides Freddie Mac and Fannie Mae loans that are in default or are about to be in default. Though very uncommon these days, but loan modifications can be of great help.
Ask Your Lender to Approve a Short Sale:
A foreclosure in case of failure to pay mortgage loan can be very distressing as it’s not something the homeowner imagines when he buys the house. Also, it can damage a person’s credit, savings, and assets. To avoid that situation, the borrower can ask the lender to approve his application for short sale.
A short sale is a transaction in which the lender allows the homeowner to sell the house for less than the owed amount. The borrower puts the house on market for sale through an agent. When the house sells, the lender regains the majority of what the homeowner owns. This saves the lenders from the trouble of going through a foreclosure suit and also from the hardships of trying to sell a foreclosed house.
A short sale doesn’t free the homeowner of the debt he is incurred with. But it can be a much better option than the foreclosure because a foreclosure stains your credit history forever. This can make it very difficult, and sometimes impossible, for the homeowner to borrow money again for some major purchase. And the banks nearly always lose money in case of foreclosures.
But this option doesn’t always work either. Because there is a chance of liability for the deficiency even if the lender agrees to the short sale. Liability is the difference between sale price and the amount owed because. Some states allow lenders to sue borrowers for liability.
Request a Deed in Lieu of Foreclosure:
You can officially make your lender the owner of your property if you can’t afford your mortgage payments. This is called deed in lieu of foreclosure. This gives the lender the rights to your property. He can control its operation and take immediate steps to maximize its economic value. It can also receive all its income and preserve valuable contracts and tenants.
An advantage that the deed in lieu has over short sale is that it allows you to take the sale proceeding. You also might get some money from your deed in lieu if you have equity in your home. You might also get to decide the forfeiture timing.
Its disadvantage is the tax implications it has and the complications it brings in case you have other loans at home.
Apply for a Reverse Mortgage:
Homeowners of the age 62 years or more can receive monthly payments or receive lump sum against their home equity. This is called reverse mortgage. In this way, you practically get the tax-free money since you won’t have to pay it back as long as you live in your home.
The reverse mortgage fee is generally higher than other loans and has more closing costs. The total interest that incurs on the loan is also high. This may total up to more than the house’s worth. Also, even with the loan, you have to pay the property taxes and house insurance. You also have to maintain the good condition of your house. This loan uses some equity which keeps on decreasing over time. There is a chance that you won’t have any equity left to give to your heirs. This may come as a shock to some. However, neither you nor your heirs will have to pay back more than your home’s worth in most cases.
Sell Your Home:
If you think you can sell your home for at least as much amount as you owe on the mortgage, consider the option of selling your home. This is recommended by both Fleming and Lee. According to the experts, any delay in selling when it is evident that you might not be able to keep your house anyway decreases your equity. This may also lower your profit when you are eventually forced to sell your home.
Another reason for considering this option is that, once you fall behind on your mortgage, it becomes public record. Your home’s market value falls and you get low value offers only. There is another very significant benefit of selling your home at the right time. It is the option of selling your home at a good profit and buying a smaller one with the money left after paying the loans. You can move to the small house which will have less property taxes and insurance fees.
Become a Landlord:
Selling home might be difficult if you have not yet recovered from the value lost during the recession. Another option is to become a landlord. In cities like Atlanta, where rents are very high but purchasing a home isn’t, you can do this business. Buy a small and less expensive home for yourself and rent out your home for at least enough money that will cover your mortgage payments and taxes.
Although you’ll have to pay income tax on the rent you receive and go through the other tasks that are involved with owning a rental property. However, you’ll have several write-offs come tax time. According to IRS, mortgage interests, depreciation, property tax, repairs, and operating expenses are all deductible.
File a Partial Claim:
If you have missed 4 to 12 payments due to financial crises which you deem temporary, you can file for a partial claim. You can get an interest-free U.S Department of Housing and Urban Development loan that will be paid directly to the lender. It will give them the right to hold property until the debt is paid.
What Not to Do:
Often times the homeowners who think their case is hopeless, walk away from their homes and mortgage obligations. According to Fleming, this is almost never a good option because, after a foreclosure, you don’t qualify for prime mortgage financing again for seven years.
And if even the foreclosure doesn’t cover the debt, the lender might come after your other property. He can also attack your income to make up for the deficiency.
Find an Attorney:
Even though this information enables you to take better decisions. However, it is always recommended to find an attorney who can guide you the right way to get yourself free of the debt.