No matter how responsible you are financially, sometimes life just happens. You might end up with a medical emergency, or lose your job. When that happens, you might find it difficult to make your mortgage payment. This is a stressful time, and the finances of the situation can make it even more stressful. If you can’t make your mortgage payment, though, it’s important to take action to reduce the chances of losing your home.
Make a Plan
Your first move should be to make a plan. If you can’t make your mortgage payment, consider your overall budget, and think about what other expenses you have. Can you cut back somewhere else? In some cases, you might be able to save in other areas to free up more money to go toward your mortgage. If you are interested in keeping your house, you will need a way to pay what you can toward what you owe. Run the numbers, and cut your expenses where you can, and see about putting the savings toward your mortgage payment.
It can be especially helpful if you have an emergency fund. With an emergency fund, you might be able to make payments for a month or two while you figure things out. Additionally, if your situation is the result of a lay off, you might be able to collect unemployment benefits. While these benefits won’t replace your entire income, they can at least help you put something toward the mortgage. The best scenario is if you have some sort of emergency fund built up, and you can take advantage of other resources designed to assist you. That way, you have the ability to keep paying the mortgage. If you need to get help from friends or family, don’t be too proud to approach them.
As soon as you realize you can’t pay your mortgage, you need to assess the situation and figure out what you can do. That way, you have a plan to present to your lender when you make contact.
Contact Your Lender
Your next step is to contact your lender. You don’t want to ignore the problem, because it can easily get worse. As soon as you have assessed your situation, you need to speak with your lender to find out if there is something that can be done. There are a number of options, including temporary modification, deferment, and forbearance. Unfortunately, some of these options aren’t possible, depending on your situation. Some lenders might be willing to create a new plan, or allow for some leeway if it appears your difficulty is temporary, and you have some resources available to at least make some progress with your mortgage. Your lender should be able to work with you to come up with a solution.
In other cases, you might have to explore other options — including getting rid of your house.
Short Sale or Some Other Option
Unfortunately, there are some circumstances in which remaining in your home is not an option when a major financial catastrophe affects your ability to pay your mortgage. You might need to move to sell your home in order to avoid foreclosing on it. Another possibility is to rent it out to someone else. That way, you can get your tenants to pay the mortgage, instead of you, while you look for a cheaper situation that is a little more tenable. Once you are back on your feet, you can move back into your home.
If the situation is dire, your lender might be willing to work with you on a short sale. In this case, you sell your home for less than you owe on it, and the lender agrees to forgive the difference. So, if you owe $175,000 on your home, but you can only sell it for $160,000, the bank forgives the $15,000. You have to realize, though, that the lender has to sign off on the short sale. Additionally, there is a good chance that the amount forgiven (in this case $15,000) counts as income for tax purposes. You will have to plan for that.
In an especially difficult situation, you might not have an option beyond foreclosure. It’s best to avoid this if at all possible, but if you end up with no choice, you will need a plan to rebuild your credit and move on for the future.