Ask Your Lender To Approve A Short Sale
A short sale happens when a lender allows the homeowner to sell the home for less than he owes on the mortgage. Its a foreclosure alternative for homeowners who owe more than their homes are worth and who have a documented financial hardship that prevents them from making payments. The lender keeps the sale proceeds, but in some cases, the homeowner receives relocation assistance.
A short sale might be a better option than foreclosure if youre not too far behind on your home mortgage payments because your credit score will take less of a hit than youd see with a foreclosure. Its the long string of missed payments that lead to foreclosure. That said, both short sales and foreclosures get reported as accounts not paid as agreed.
Even if the lender agrees to the short sale, theres a chance youll have some liability for the deficiency, which is the difference between the sale price and the amount owed. Some states allow lenders to sue borrowers for the deficiency, and the IRS might tax it as personal income.
What Happens During The Foreclosure Process
In her article Foreclosure: What It Is And How It Works? for Forbes Advisor, Natalie Campisi looks beyond the consequences and explains the foreclosure process. First, Campisi notes that foreclosures can be either judicial or non-judicial depending on the laws of your specific state. In a judicial foreclosure, your mortgage lender will file a lawsuit to initiate foreclosure. Both the borrower and lender will meet in court and if the borrower loses their case, the house will go into foreclosure and might sell at auction. Alternatively, a non-judicial foreclosure relies on power-of-sale clauses in the mortgage or deeds of trust to recoup the balance owed if the borrowers stop making payments. You will handle these disputes outside of court.Most homeowners can remain on their property until the house sells and the foreclosure process is complete. If the house sells for more than what you owe your lender, you will receive a check for the difference. If the house sells for less than what you owe, your lender might file a lawsuit that requires you to pay the remainder. As Campisi notes in her article, some states prohibit this action by law. However, you might still owe overdue property taxes. Consult your contract for more information.
Bringing It All Together
As you can see, there are a number of factors that determine how large of a mortgage you can get. If you get access to your FICO score and crunch some numbers, you can get a rough idea of your borrowing capacity. You can also seek assistance from your bank or a mortgage broker.
All of this, however, still leaves one important question.
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Do You Get To Skip A Payment When You Refinance
No, you do not get to skip a payment when you refinance. You may go one month without paying your mortgage during the transition between your first mortgage and the new refinance. However, that months payment is added to the end of your loan, effectively extending the new mortgage by one additional month.
Selling Your Home To Pay Your Debts
If you dont have enough money to carry on paying your mortgage or the arrears, you might decide that the best course of action is to sell your home. You shouldnt do this without getting financial advice.
Selling your home might seem like the only option when your financial situation is difficult, but there might be other ways of dealing with the problem until your circumstances improve. You should also be aware that if you have any difficulty selling your home, youre still liable for all the costs until its sold.
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If You’re Struggling Financially Here Are Some Steps You Can Take To Get Back On Track:
1. Draw up a realistic budget
It is vital that you look at your finances and draw up a budget that you will be able to stick to.
Start by looking at your statements and listing all your outgoings and income. This should help you identify areas in which you could rein in your spending and put that spare cash towards meeting your mortgage repayments.
2. Prioritise your debts
If your mortgage is your only debt then you can concentrate on this by putting as much spare money as possible towards meeting repayments.
You could even put your mortgage repayments at the top of your list even if you have other debts like:
While other debts can be intimidating, it is more important that you have a roof over your head. Put your mortgage at the top of your list but make sure you are doing everything you can to meet the demands of your other debts as well.
3. Continue to pay
If possible, try to at least keep up a minimum level of repayment – even if it is not quite the level originally agreed with your lender.
Discuss this with your lender first, so they know how much you can pay and are aware that you are having difficulty meeting your payments.
This shows your lender that you are at least trying to meet repayments and have good intentions, which may make them behave more leniently towards you.
Apply For A Reverse Mortgage
A reverse mortgage lets homeowners age 62 or over draw a lump sum or receive monthly payments against their home equity. The primary benefits of a reverse mortgage loan are that you dont have to pay it back as long as you live in your home and you typically get the money tax-free.
Reverse mortgage loans come with some caveats. Youre still responsible for paying property tax and insurance and youre required to maintain your home, said Fleming. In addition, youll pay closing costs when the loan goes to settlement, and over time, the interest that accrues on the loan might total more than the homes value. Although neither you nor your heirs will have to pay back more than your home is worth in most cases, you might not have any equity left to leave to your heirs.
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Contact Your Lender Right Away
You don’t need to wait until you’ve missed a payment or you’re sure you won’t be able to make one call your lender if you are concerned about your ability to pay. In general, the earlier you ask for mortgage assistance, the more choices you’ll have. But to get advice specific to your mortgage, grab the phone.
In general, the earlier you ask for mortgage assistance, the more choices you’ll have.
Here’s what you should have ready when you call your lender:
An estimate of your current income .
An estimate of your current expenses.
Your most recent mortgage statement.
Documentation of what caused your situation to change .
Check If You Have Insurance
If youve lost your job or your income unexpectedly, check if you have mortgage payment protection insurance. You might have taken a policy out when you got your mortgage or later. Your insurance might not be with your lender.
There are lots of circumstances when your payment protection policy won’t pay out. Youll need to check the terms and conditions of your policy carefully to see if youre covered.
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If The Lender Wont Accept The Offer
If the lender wont accept your offer, you should carry on paying as much as you can.
If you dont think your lender has handled your case well, you should discuss this with them. If you decide to make a formal complaint, your lender should acknowledge your complaint within 5 working days.
If youre unhappy with the response from your lender, you can report your lender to the Financial Ombudsman Service using an online form.
Defining Your Financial Boundaries
Before you can look for homes, you have to know how much house you can really afford. And that number should be based on your financial situation, not pressure caused by the rising prices in your housing market.
If you cant pay cash for your home, the next best option is getting the right mortgage loan. Follow these guidelines:
- Choose a 15-year fixed-rate conventional loanthe cheapest, quickest type of mortgage to pay off.
- Keep your monthly payment to no more than 25% of your take-home pay.
- If youre a first-time home buyer, put at least 510% down. If this isnt your first rodeo, aim for 10%but 20% or more is even better!
- Pay for closing costs and moving expenses with cash.
- Steer clear of FHA and VA loans.
Want to see what you can afford? Try our mortgage calculator. And if youre married, make sure you and your spouse are on the same page about what that looks like for you.
Then be prepared: A lender will probably approve you for a much higher amount, but just because you qualify for more money doesnt mean you can afford to take it. Stick to the 25% rule, and youll be golden.
Once you know what affordability looks like, share your boundaries with your real estate agent and dont budge.
Prioritise Your Debt Payments
Its likely that other bills are going unpaid at the moment if youre struggling to pay the mortgage. Keeping your mortgage payments going above all else should be your highest priority of all the bills at the moment, says Ms Warner.
She often sees people keeping consumer debt, the credit cards, the car payment, afloat, rather than the mortgage but consumer debt is easier to manage if it gets into arrears.
Make Some Phone Calls
In order to move forward productively, youre going to need to open the lines of communication with several important people. First and foremost, you are going to need to set aside a few hours to make some phone calls to the most pressing agencies. This can help you to make a more solid plan moving forward and possibly help you to find a solution to your missed payment.
The first person you need to call is the company who is expecting your mortgage payment at the beginning of the month your mortgage provider. Some people have a difficult time tracing the appropriate phone number and contact information when theyre already overwhelmed by this situation and having trouble paying their mortgage. However, it should be fairly easy to find listed on your monthly loan statement.
Before you call, you should have a plan of what you need to say and do once you reach a representative.
Outline a plan for explaining why you cant make the mortgage payment in the first place. Structure your explanation in a way that is clear and makes sense to explain to an outside person. If you need to, it may be helpful to make some notes to keep in front of you during your conversation. For many people, this is an extremely emotional subject, and it can be difficult for them to think clearly when discussing it.
Contact a HUD-Approved Housing Counselor for Help
You can find a list of all available foreclosure avoidance counselors here or call their 24-hour helpline at 1 995-HOPE for free.
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Here’s What To Do If You Can’t Afford Your Mortgage Payment
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We know the scenario: Maybe your spouse lost a job, dropping your household income. Maybe your hours at work have been cut. Or maybe your own job has disappeared. Whatever the financial emergency, your monthly mortgage payment has become unaffordable.
What can you do if you want to keep your house? There are steps you can take to relieve your burden. But be warned: Most of them involved a sacrifice on your part.
Consider Selling Your Home
If your circumstances are unlikely to improve, you may be better off selling your home.
This is a tough decision to make. But it’s better to sell your home yourself than have a lender take possession and sell it. You’re likely to get a better price and you’ll avoid paying any legal costs passed on by the lender.
Another option is to live somewhere else and rent out your home until you can afford the repayments again.
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What Happens If You Miss Just One Payment
Foreclosure typically results in a financial loss for the mortgage company. After all, lenders make a lot of their money off interest payments. Given this, most lenders allow several missed payments before entering the foreclosure process. Lenders understand that missing a credit card or student loan payment happens whether by accident or a temporary lack of funds. The same is generally true for mortgage lenders. One missed payment especially one missed by just a few days is unlikely to impact your credit worthiness or loan terms.Kim Porter explains in her article What Happens If You Miss a Mortgage Payment? for Credible.com. Porter writes that most loan servicers offer a grace period where you can make a payment within 15 days after the due date without penalties. It is only after your lenders grace period that the company might charge a late fee, which Porter notes are in your contract.According to Porter, your mortgage servicer will probably report the overdue payment after 30 days of delinquency unless the two parties previously discussed a reason for delay. After sixty days, you will have missed two payments and the issue will likely become more serious e.g. a late payment and/or reporting overdue payments to credit bureaus.
What If You Can No Longer Afford To Pay Your Mortgage
For one reason or another, many people come upon periods of financial difficulty. During this time, many people become unable to make mortgage payments. In this situation, the most important advice is to consult your bank or other financial institution and explain your situation clearly. Often, the bank will be willing to come to some sort of arrangement to accommodate your present needs. For example, the bank may agree to temporarily reduce your regular payments.
If you stop paying your mortgage payments and do not make other arrangements with the bank, the bank will likely begin legal action to take possession of your home. Whatever your problems, it is a good idea to advise your bank and request a temporary solution until you become more financially stable.
If your house is not worth more than your mortgage loan and you cannot make your payments, you may want to consider walking away from the home under a quit claim deed. If your mortgage lender agrees, you may be able to transfer title of the house to the lender in return for a complete release of all your obligations. The lender then becomes the full owner of the property.
If you cannot reach an agreement with your bank and you are unable to make your payments, the lender may begin action to take your property. Before this happens, you should contact a lawyer to determine all of your options.
If you are buying a home and want to know how much of a mortgage you qualify for, use the Scotiabankmortgage calculator.
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Declare Chapter 13 Bankruptcy
You might be able to keep your home by declaring Chapter 13 bankruptcy protection. But Winkfield says that this should be a last resort. Declaring bankruptcy can hurt your credit score by more than 100 points. And a Chapter 13 bankruptcy filing sits on your credit report for seven years, making it a challenge to qualify for a new mortgage loan or any form of credit.
“This should only be used if you have absolutely no other option,” Winkfield said.
In a Chapter 13 bankruptcy, a bankruptcy judge drafts a payment plan that allows you to pay back your creditors on a schedule that you can afford. This plan will include more affordable payments to your mortgage lender each month. You’ll also get to keep your home.
You might also file for Chapter 7 bankruptcy, in which some or all of your debts are permanently wiped out. But this form of bankruptcy protection comes at a steeper price. First, it remains on your credit report for 10 years. Secondly, you might have to sell your home, and other assets, anyway as part of your bankruptcy agreement.
Being unable to cover your mortgage is stressful. But being proactive and budgeting creatively can maximize your chances of keeping your home.
What steps have you taken to overcome mortgage troubles?
Disclaimer: This site contains affiliate links from which we receive a compensation . But they do not affect the opinions and recommendations of the authors.