Tuesday, February 10, 2015

Struggling to make house payments? Read this BEFORE making a decision.


Even though things are looking up and the economy appears to be in a recovery phase there are still many people that are having difficulty making their mortgage payments. Some of them may only be a month or two behind while others are quickly approaching the “point of no return”. Regardless of your personal situation or how you have arrived there if you can no longer pay your mortgage than there are only 6 options available to you. Here are the options you have if you find yourself in this unenviable situation. Keep in mind that no matter how bad things seem to be you do have choices and it’s really just a question of deciding if it’s possible to save your home or if indeed it’s time to let it go.

1. Talk to the Lender FIRST
This should be the first step you take if you need help. To be completely honest it is in the lender’s best interest to keep you in your home and to avoid a foreclosure if at all possible. Lenders do not want to have an inventory of homes that they need to sell in order to recoup some or all of their investment. Explain your situation to your lender and try to work with them in order to keep your home. You might be surprised at how willing they are to assist you and the sooner you talk to them about your situation the better it will be.

2. Consider a “Refi”
Sometimes it is possible to lower your monthly payments as well as to eliminate the past due amount owed on your mortgage by refinancing the loan. This may not be possible if you are considerably behind in your payments but is a consideration if you attempt it before the problem becomes critical. As an example, if you have 10 years left to pay for your mortgage you could refinance it with a new 25 year mortgage and the monthly payments would be much lower. Naturally there will be the additional cost of refinancing fees and possibly even a higher interest rate but at least there is the possibility of saving your home.

3. Pursue a Loan Modification
A loan modification is similar to refinancing but the difference is you are not applying for a new loan, you are asking your lender to change the terms of your existing loan. It is, in essence, a renegotiation. If you are able to show your lender that you cannot afford your current mortgage at this time it is possible they might be able to make some changes to help you get back on your feet. Perhaps it could be lower payments due to a decreased interest rate, deferred payments (not needing to make a payment for a short period of time such as 2 or 3 months) or some other method of giving you some extra time to make things right again. Not everyone will qualify for a loan modification but you’ll never know unless you try.

4. When All Else Fails - Sell
Unfortunately, if none of the 3 options above are a possibility for you it might be time to sell. Time is of the essence here and if it is possible to simply place your home on the market and sell it quickly (and for enough money to pay off the mortgage completely) it might be time to make a move. If you owe more money than the home is worth you might need to consider a short sale or even something known as “Deed in Lieu of Foreclosure”. This is when you simply turn your home over to the lender allowing them to sell the home and keep the proceeds and eliminating the need for you to continue to make your monthly payments. (This is not an option in all areas). Either way, both of these choices are serious and could have significant tax implications as well as other monies owed by you when all is said and done. I strongly advise you to consult with a professional before making this decision but it is one possible way to avoid foreclosure or bankruptcy.

5. Declare Bankruptcy
This is the one “cure” that no one wants but if it is your only option than you must consider it. There are different “types” of bankruptcy (such as Chapter 13 and Chapter 7) and each is unique and has consequences. Keep in mind that filing bankruptcy will affect your future ability to obtain credit and possibly even affect your career. Filing for bankruptcy is serious and again you should consult the guidance of an expert before making this decision.

6. Walk Away
The same as bankruptcy, simply walking away from you home and allowing it to be foreclosed upon is extremely serious. I in no way advocate this as a solution but perhaps some people have no choice but to “give up” and allow their home to be repossessed by the lender. This could have extreme financial consequences in the future including your still owing a significant amount of money to the bank even though your home has already been sold to a new owner. If you owed $150,000 on your mortgage and the bank was only able to sell your home for $100,000 chances are good that you are going to be sued in court for the difference. There’s also the additional costs of legal fees and the like that you may be held accountable for at some time in the future. The bottom line is that walking away is truly your last resort but if it is a matter of survival and you simply have no other recourse than this is in fact a choice that can be made. By addressing your situation in the beginning this is something that is always almost avoidable.

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