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Since you’re reading these words, one can assume you’re struggling with your mortgage payments. That’s not so surprising, as many people have issues with this. Falling behind on your mortgage payments isn’t something pleasant. Far from it, actually. Once you think of all the downsides such a situation brings, it’s enough to make you frown in less than a second. We’re talking about the effect it can have on your credit score or its influence on your ownership of the home you’re living in. However, even though we’ve begun this one in a pessimistic mood, these issues aren’t something you should bug your brains about. There are ways you can utilize to work things out in a manner that’s not so unbearable. That’s precisely what we’ll talk about today. The article below will consider your options if you cannot afford your mortgage payments. Stay tuned!
What happens once you can’t afford mortgage payments? (the consequences)
Before we delve deeper into today’s subject matter, let’s talk about all the issues one can stumble across once one can’t pay their monthly mortgage. Here’s what happens if you can’t afford it!
First of all, you’ll be charged a late fee if you don’t pay your monthly mortgage fee in the 15 days following the due date. Typically, lenders allow you to pay until the 15th of the month without asking you to pay for penalties or something. If you turn those 15 days into 30, your mortgage loan will step into default mode. That should signal that your lender has reported you being late to credit bureaus. Of course, this kind of action will have some influence on your credit score. Your best bet is to find a way to avoid such a scenario.
What about foreclosure?
Once you’re four months (120 days) past your due date, the foreclosure process begins. In other words, this is the point at which your lender has legal rights to take over the ownership of your home, thus removing you from the property, although this process differs from state to state. If you’re wondering what’s in it for the lender, they can sell your property in order to substitute for your remaining mortgage. However, there’s a catch. Imagine if such a sale doesn’t pay off your remaining debt. Your lender can take some additional legal action against you because of the so-called deficiency judgment.
Luckily, there are 6 options to choose from
That’s right, here’s what you can do to avoid all the trouble we’ve discussed above!
#1 Consider refinancing
Let’s say your credit score’s doing alright. In that case, you could take out a new mortgage, just with a lower monthly payment. That way, you can make your payments less costly. Generally, this action works best if you’ve at least 20% in equity in the property. That should mean you can do away with mortgage insurance on the new loan. All in all: this enables you to opt for a new loan at an interest rate significantly lower than the one you have on your old loan.
Also, remember that the so-called refinancing process can take weeks or sometimes even months. Additionally, you’ll have to say goodbye to some cash to pay origination fees related to the new loan. Hopefully, you don’t have any skipper payments on your old loan, which might damage your chances of new mortgage approval.
#2 Sell the place quickly (if necessary)
Now, this might sound a bit tough, but it’s an option you can always count on. If your home’s value is over the sum you own, it might be a good idea to sell it. It makes the most sense, financially speaking. Also, if we’re talking about a property that’s in good condition, it might sell quicker than you’d imagine. It’s what real estate pros call a short sale. Under such conditions, the bank (or whoever is your lender) will agree to sell your place and take the amount in exchange for your debt.
As always, there’s a bit of a downside to this. You should know that any mortgage payments that you skip during a sale, even a speedy one, will have some substantial impact on your credit score/reports. Therefore, you can try to handle all your payments even during the sale of your soon-to-be ex-home.
#3 Pause your payments (forbearance)
Here’s another trick you’ve got up your sleeve: you can call your lender and ask about forbearance. This action will enable you to pause your payments for a certain time. Or your lender might reduce your monthly rate (as that can happen, too). Typically, you’ll get away without having to endure any penalties because of this. Also, you won’t have to pay extra interest during the so-called forbearance period. That doesn’t mean that you eventually won’t have to pay the payments you’ve missed. How you’ll do that depends on your lender: you might be offered a repayment plan or need to spew out some cash all at once. Whatever it is, your lender will inform you once the forbearance period ends.
#4 Modify your loan
Oh, and there’s the option of asking your lender to modify your loan. This means that your lender might be able to change the terms of your loan in order to make it less costly. For instance, they might be able to extend your loan term or reduce interest. In some cases, they might even reduce your loan balance. It all depends on the offers your lender is willing to give you. Therefore, if you’re experiencing some financial drawbacks, mortgage modification might be the best thing to opt for.
PS. Lenders are under no obligation to help you out in this manner, and they’re more likely to assist if you’ve got a strong credit score that will show them you’re able to keep up with payments under the freshly agreed-upon terms.
#5 Find assistance (other sources of help)
Besides reaching out to your lender for help, you might also contact local charity organizations such as United Way, Salvation Army, the Society of St. Vincent de Paul, and many others. They might be able to help you out with mortgage aid or any other form of assistance. Also, let’s say that you’ve experienced an unfortunate event such as a national disaster (tornado, hurricane, etc.), and that’s the reason why your finances have seen their better days. You might be able to opt for additional alternatives through the FEMA (Federal Emergency Management Agency), via your lender, or, at last, through a recovery organization such as Red Cross.
Bonus: See whether you’re eligible for a government program
There’s a government program called The Making Home Affordable Program. It was introduced to the public with the intention to help homeowners make their monthly mortgage payments less costly in the long run. We’re talking about options such as interest rate adjustment, loan term extension, or forbearance. You’ll need to check whether your mortgage lender participates in this program. Also, if your mortgage is seen as “underwater” (you owe much more than your home’s market value), your mortgage will automatically get judged to see whether or not the principal is able to be reduced. To figure out whether you’re eligible to take advantage of the program in question, visit its official website.
#6 Rent your home to other people
Lastly, you possess the option of renting out your home to tenants. This might be a good idea if you’ve got someplace to stay during the period in which you’ll act as a landlord. Moving in with friends or family is always your best bet, as we’ve heard from the people over at evolutionmoving.com. Also, keep in mind that the monthly price at which you’ll rent your place out will need to cover your mortgage. Otherwise, the whole idea won’t succeed.
Now, before one becomes a landlord, there are things to look out for, things that might act as an additional financial burden. As a landlord, you’ll have to pay extra property insurance costs on the property. Also, you’ll have to handle various home maintenance tasks and repairs and arrange to repay any mortgage payments that you might’ve missed while setting up your rental property. Oh, and don’t forget this: if you step into foreclosure after renting out your home, your tenants might have legal grounds to sue you.
Okay, so that’s about it when it comes to your options if you cannot afford your mortgage payments. Let’s consider some extra valuable information surrounding the same subject.
How to avoid falling behind on your mortgage payments with ease?
Of course, it’s better to prevent the situation in which you’ll have to browse the web for options to try out if you cannot afford your mortgage payments. To be more financially stable, you might want to take up an additional job or take in a roommate as long as your monthly rate is paid on time. In the fewest of words, one needs to be sure they’re financially able to buy a certain property. Here are some tips to avoid falling behind on your mortgage.
Save some funds for a larger down payment
By saving up for a heftier down payment, you’ll enjoy equity in your home right from the start. Also, that way, you’ll avoid owing more than your home’s worth at a given moment. There are many ways you can save some money or even earn a solid side income. For instance, you might want to sell some stuff you no longer use via the internet.
Deal with your debts first
Now, this is crucial: you’ll want to deal with your debts first before applying for a mortgage. Paying down your credit cards, student loans, and other irritating debts in advance might be the best thing you can do. It will free up your income and make it easier for you to handle your monthly mortgage rate.
Don’t opt for a home you can’t afford
Never opt for a property you can’t really afford. That’s because otherwise, you’ll find yourself in a rather unpleasant situation feeling overwhelmed by your monthly mortgage. Imagine your income changes or an emergency eating away a portion of your funds. Make sure you can afford the place and have some backup finances ready.
Cut down on your monthly bills
Now, of course, cutting down on your monthly bills won’t save you enough money to completely cover your mortgage payments, but it won’t do you any harm either. By “shaving off” some money on your other monthly expenses, you’ll be able to significantly lower the cost of your mortgage payments.
Where should you start? Well, begin by checking whether there are any subscriptions you’re paying for services you no longer (intend to) use. If there’s autopay involved, it’s easy to forget certain things. Also, there are apps designed to help you with this (Truebill, for instance). They’ll help you hunt for subscriptions you no longer want to waste money on.
Don’t overpay your home insurance
Needless to say, homeowners insurance guarantees you a piece of mind. However, are you sure you’re not paying much more than you should for it? There are online platforms that help you compare quotes from various top-quality insurance companies to check for discounts. They’ll help you browse for lower rates in your area. That way, you’ll avoid overpaying for home insurance and do some damage to your overall monthly payments, including your mortgage rate.
Final words on the subject of options if you cannot afford your mortgage payments
Okay, dear readers, this was all that we’ve prepared on the subject of options if you cannot afford your mortgage payments. Hopefully, this article has helped you cut down on your monthly expenses. Now you understand that handling your monthly mortgage might be easier than you thought. You can always come back to this article in search of a solid strategy. Until next time!
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