We are here to have the difficult conversation with you- the one about what happens when you can no longer make your mortgage payments.
First and foremost, ignoring the problem is only going to cause further financial hardship as time goes on. While pretending the problem does not exist may seem like the preferable option, it is the option that will certainly end in foreclosure. Addressing the issue head on is going to be the most effective, even though it is quite the “sticky” topic.
So, what can you do when you can’t afford to make your monthly payments? Here are a few recommendations that can serve as a lifeboat during tough times.
Communication is key
The minute you recognize you can no longer make those payments, it is crucial that you communicate that to your lender. The longer you wait to address the issue, the less options you may have. So, communicate!
Come to the conversation prepared. Have details on why you can’t make your payments and if it is a long- or short-term concern. It is also essential to include details about your income, debt history.
Foreclosing on a home is not necessarily the “best” option for your lender. Opening up these lines of communication with them (early) will give you the opportunity to find a solution that best addresses your current situation.
While refinancing can appear great, in theory, it is important to acknowledge the other fees associated with refinancing. Let’s say you have 10-15 years left before paying off your mortgage. Refinancing could provide the opportunity to extend the life of your loan, resulting in lower payments.
This is different for each situation, for each person or family. In order to determine whether or not refinancing is the best option for you, talk to your mortgage lender. They can provide more details on your unique situation.
Ditch the house
Easier said than done. And there are two different options you have here- short sale and a deed in lieu of foreclosure.
A short sale is when the bank allows the homeowner to sell the home for less than they owe on the mortgage. This option is sometimes considered less than desirable to lenders, because they are essentially receiving LESS money back than they originally lent. But, it is an option that is less damaging to your credit score (than, say, foreclosure).
Deed in Lieu of Foreclosure gives a homeowner the opportunity to sign the deed of the house over to the bank, rather than the bank foreclosing on the home. So, here, you turn the home over to your lender so they can, in turn, sell the home.
Before deciding that either of these are the next course of action for you, we recommending talking to a housing counselor and a tax professional. They can provide more insight into the implications of taking this step.
This is definitely not the easiest thing to do. It will destroy your credit, making it hard to borrow money for multiple years.
It is still possible to declare bankruptcy and keep your home. In a Chapter 13 bankruptcy, borrowers are still able to keep their home, but they must have a stable plan for repaying most of their debt.
While not your first line of defence, declaring bankruptcy is definitely still an option.
Time to rent
If you do not want to give up your home, but you can no longer afford your monthly payments, one option is renting out the house. Depending on the area you live in and the demand for rental properties, this may be a viable option for you. However, it is crucial to remember that becoming a landlord is not a “simple” endeavor. But if you are able to secure a renter and a secondary location for you to live while you are renting, this may be a way to save you from foreclosure.
So, whether you are on the verge of foreclosure or you have just stumbled upon financial hardship, we recommend you talk to your lender. The sooner you can open those lines of discussion, the more options you will have at your fingertips. And each situation is unique, so while these are some of our general recommendations, your lender will have information and details specific to your situation.