What are the options when your financial situation changes and you can no longer afford your home loan payment? Maybe you are facing divorce, lost your spouse, your employment changed, or an ARM loan has put your home mortgage payments out of reach; when you can’t make your mortgage payments the reasons don’t matter as much as the fact your income no longer covers expenses.
When you can’t sell your home and want to avoid bank foreclosure, mortgage lenders, as required by foreclosure law, offer a variety of alternatives to help you keep your home. The right solution depends on whether your financial problems are short or long-term, how many missed mortgage payments, and whether you’re in pre-foreclosure.
3 Short-term Options
If you are a few payments behind and your financial difficulties are short-term, you should contact your lender immediately to discuss forbearance, repayment, and reinstatement. Don’t avoid the problem. Contact your lender’s foreclosure mitigation department for assistance as soon as your first missed payment to retain all options. Don’t wait for a mortgage foreclosure notice.
Forbearance
When you need a few months' break from payments while starting a new job or recovering from injury, your bank may accept partial payments or agree to a short period where no payments are due. To get current and reinstate your good standing, you will either need to pay a lump sum or arrange repayment.
Repayment Plan
If you have fallen a few months behind but can now make payments, review your budget and cut out any nonessential expenses such as dining and entertainment. Present a reasonable plan to send in a portion of your past due amount with each monthly payment.
Reinstatement
You’re back on track and making full mortgage payments on time. But you still have to repay those missed payments. After a period of late payments or forbearance, you may need to make a lump sum payment for reinstatement.
2 Long-term Options
What if your financial woes are long-term? Your ARM payments have increased beyond affordability, you’re permanently disabled, your company forced early retirement, or you’ve divorced a higher income spouse. A few months' flexibility won’t help. Ask your lender to modify the mortgage terms or file a partial mortgage insurance claim.
Mortgage Modification
If your interest rate on your adjustable rate mortgage has gone up beyond your ability to pay or your financial circumstances have permanently changed, your lender may modify the terms of your loan. They may add late payments to your balance, adjust interest to a lower fixed rate, or convert the loan to a longer term.
Partial Claim
If you are 4 to 12 months behind on your mortgage, but can now begin making full payments, determine whether you have an FHA-insured mortgage loan.
Rather than arranging a repayment plan for deficiencies, your lender files a partial claim on your mortgage insurance. In exchange, HUD pays the amount needed to bring you current. You need to repay this interest-free bailout loan after paying off your first mortgage or when selling your home.
Special Circumstances
Special programs exist for military personnel, military spouses, and disaster area victims. Service members may qualify for an interest rate reduction. Disaster area victims may obtain short-term relief (90 days for FHA loans). Contact FHA for information.
Foreclosure prevention depends on quick action to stop the foreclosure process. Know your rights, how to find available advice and services, and ways to avoid the bank’s sale of your home. Beware of equity skimming real estate scams often disguised as refinance offers. There are many reputable sources of free foreclosure assistance.
