What If I Can’t Afford to Pay My Mortgage Payment?

Foreclosures continue to plague the country’s housing market. January was the 11th straight month that more than 300,000 properties nationwide received a foreclosure filing. That’s a lot of foreclosures! And that’s a lot of people who find themselves unable to make their monthly mortgage payment.

What are your options, if you are a homeowner who can’t make your mortgage payment? There aren’t many, but you do have some choices.

Contact Your Lender

The firs thing to do when you can’t make your mortgage payment is contact your lender. That can be a scary thing to do, but it’s necessary. The longer you wait and the more behind you get, the fewer options you will have. By contacting your lender as soon as there’s a problem, you will preserve your ability to make choices, rather than be left with foreclosure as your only option.

Refinance or Apply for Loan Modification

Since so many people are upside-down in their mortgages, and since so many mortgage companies behaved unethically in approving loans that shouldn’t have been approved, the government stepped in to provide an option for homeowners who cant afford their mortgages.

If you meet certain requirements, you may be eligible for the Making Home Affordable Program, a voluntary program, in which banks either refinance or modify your loan, to help you better afford your mortgage.

It sounds altruistic on the part of the banks, but it’s really not.

  • First of all, it’s voluntary for the bank. They do not have to do anything.
  • Second, from the bank’s perspective, if it comes down to modifying your loan or having to sell a foreclosed home, the bank is often money ahead to modify your loan or offer you a refinance with better terms. This could mean increasing the term of the loan, cutting the interest rate, or even cutting the principal amount owed.

You have to be persistent, if you want to pursue this option. Banks are inundated with requests for loan modification, so you’ll have to be a good advocate for yourself. You should also be prepared for a long wait. This isn’t something that will get approved in a week. It will likely take months from the point of first contact. But if you’re behind on your mortgage, this is the best option for keeping your house and preserving your credit.

Get Rid of Your House

Sometimes the best thing to do is get out from under your mortgage. If you opt to sell your home, selling it the traditional way is obviously the best way to go. However, because of falling real estate values, a lot of people don’t have that option. They owe more on the property than it’s worth. You may still be able to sell your home, though, if you can get the bank to cooperate.

  • Short Sale. A short sale is when the bank agrees to let you sell your home for less than what you owe on your mortgage. A bank does not have to agree to a short sale, but if it does, it’s a good option. A short sale is less damaging to your credit than a foreclosure, and it will get you out from under a mortgage you can’t afford.
  • Deed in Lieu of Foreclosure. Instead of foreclosing on a home, sometimes a bank will accept a transfer of the deed in lieu of foreclosure proceedings. You sign the deed over, and the bank owns your house. The bank is then free to sell the house to recoup the cost of your loan.

Keep in mind that with both a short sale and a deed in lieu of foreclosure, there are tax implications. Before pursuing either of these options, make sure you consult a tax professional to find out what the tax ramifications will be.

Declare Bankruptcy

I’m not a personal fan of bankruptcy, but sometimes it’s the best option. In a Chapter 13 bankruptcy, you are allowed to keep your house, but you will have to submit a plan to repay your debts.

Before deciding on a Chapter 13 bankruptcy, you need to be sure you can actually repay your debts. If your mortgage was too big for your income, chances are a bankruptcy will not help you. But if you had a temporary issue that caused you to get behind in your payments, and that issue is resolved, a Chapter 13 bankruptcy might benefit you.

Walk Away from Your Home

This should be the option of last resort. If you can’t refinance or modify your loan, if your bank won’t agree to a short sale or deed in lieu of foreclosure, and if bankruptcy isn’t an option for you, foreclosure may be your only choice.

If foreclosure is imminent, stay in your home as long as possible. Take the money you would have applied to your mortgage payment and put it in savings, so you can afford a deposit on another place to live.

While I don’t believe people should walk away from their debts, sometimes it’s the only option. People make mistakes, economies tank, illnesses with big medical bills hit. If you’ve tried to work with your bank, and you don’t have any other option than to walk away, then sometimes you just have to walk away.

Beware of Scams

Since mortgage issues are so common right now, a lot of scammers are trying to prey on desperate homeowners. If you work with a third party to try to resolve your mortgage problems, make sure they are a reputable agency. Watch out for anyone who tries to charge you a fee, pressures you to sign over your deed, or tries to collect mortgage payments from you. There are no miracle fixes for mortgage problems, so don’t believe anyone who tells you they can quickly and easily help you out. If it sounds too good to be true, it probably is.



Author

By , on Feb 15, 2010
Lynnae McCoy I'm Lynnae, wife of one and stay-at-home mom of two. I'm committed to getting out of debt by being frugal with my choices in life.

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{19 Comments}

  1. Don:

    I am in a pretty bad situation my self. I am 36 years old single parent who has been raising his to kids on his own. My house has been my home forever.My Great Rampage built this house and it has been handed down from one generation to the next.Now I am in it and I lost my job.

    Been trying to find work but it has been hard living in Michigan. My Credit Union has worked with me in the past. But now, my unemployment has been cut even more. And I have fallen back on my house payments. I ask my credit union if I could make interest only payments, just until I can find work. They told me they do not offer that.

    So now what just foreclose on me? I mean why would they not work with me on this? It’s not like they are not making any money on me. So what if I am not paying towards the principle, wright now. The fact is I can only pay what I can,and for them to tell me no they will not except this,is just wrong. I mean would they not gain by this then if if they foreclosed on me? Would it not cost the credit union more, by foreclosing on me?

  2. ivey freeman:

    I have been renting my house to pay the mortgage but i have now lost my tenant i am not behind at present but i wont be able to pay this coming payment I am 76 and on ss and my wife is not well enough to work. i will contact the bank but i dont look for a good response.

  3. Alan:

    It’s important to get representation yourself in matters like this. It’s good to contact your lender right away, but you should also seek the advice of a lawyer who can represent you and not try to navigate these tough legal issues alone.

  4. Cass:

    I got a perm MHA loan mod with Chase Bank in June it was final. but more problems arrived for me. In March my daughter was diagnosed with a terminal illness this came about the same time that I just made my last trail payment. Chase basically forced me to sign a new contract by keeping my home in foreclosure status they added $36,000 the the back on my loan by them doing this it put me at almost $100,000 upside-down on my home. they also gave me an adjustable interest rate. My original loan was a fixed rate. Although, the highest interest rate would still be 3
    points lower. I struggle to make this payment. I’ve already fallen Behind on my payments 2 months but now i am caught up. The bank also refuses to send me monthly statements and they are applying every payment I’ve made to my escrow account. What can I do? I’m afraid that with all the medical bills and unpaid time off that I have to take to take my daughter to her appointments ( 3 times a week) that I will fall behind and not be able to catch up… What can I do? Will Chase allow me to apply for another loan mod? I know that in 5 yrs I will be worse off then I am now if I continue with this mod agreement.please any direction given will be greatly appreciated. Thanks, Cass

  5. Lynn James:

    I’m a month behind on my mortgage right now and have not been able to find work. I’m hoping that i don’t have to go the bankruptcy route, but without steady work I don’t think the I will be able to qualify for any of the programs the banks are offering.

  6. Jamie Hamner:

    I own a piece of land that I can no longer make the payments on. I’m going to call the bank tomorrow. I’m very nervous. I’m afraid I’m going to say the wrong thing and make matter worse. Any advice?

  7. Sue:

    My husband has a full time job and I am on unemployment. My husband is not able to take care of the outside of our home anymore. (medical reasons)
    Soon I will be forced to go on social security because my unemployment wiil be running out. I will make less than I do on unemployment.
    I pay for our mortage with my unemployment checks.
    At this point my home will not bring what I owe on it. Not sure what direction to go in. I would consider moving out but, I will need money to relocate.

  8. Mike:

    Amazing! We the general public bail the banks out in their time of need and now when people need help the banks turn their banks on most everyone. The government should force them to help people out, although that is probably NOT legal. Somehow it is legal for the government to force the general public to pay for the GREEDY banks.

    SIGNED The middle class

  9. Nico:

    Good points! Although not a desirable situation, people should know that there are ways out in case you can’t afford to pay your mortgage anymore.

  10. The bank has several options; which they choose is up to them. Short sales and foreclosures all take time and both will impact your credit accordingly. Just because you stop making payments doesn’t mean the bank will skip ths short sale option either. It’s something you’ll have to work out with your bank, but make sure you keep them informed every step of the way and work with them to arrive at the option that’s best for you and the bank.

  11. nanzy21:

    Hello…found this post very interesting as my mom is going thru something similar. Any advice as to what to do will help a lot. So, my dad recently passed away and the house was under his name. My mom has been a stay at home mom/wife for the past 6 years. Since my dads passing she has had to apply for work at various places (havent gotten a response yet). She cant affort to make the payments on house and is wondering what her options are. I contacted the bank and they said they need her to put the house under her name. I asked many different ways as to how and what her options are if she cant afford the mortgage and all the reps said was that she needed to sign the papers to change the house to her name. She doesnt want to lose the house…it holds too many good memories.
    Thanks

  12. carl woods:

    I signed a contract with countrywide,b of a has it now.I am not paying them because we have no contract.I tried to get my mortgage lowered by Making home affordable (5 times) paper work was sent to bofa(lost it again).Lower my interest rate,NO.can not do a short sale.The market went down and i lost $200000.00 when selling my other home,or this one would be payed off.I can afford this house but in 2 years can’t.COME AND GET IT B OF A -i am 5 months behind and have heard nothing.I am saving $2600.00 a month.GOOD FOR ME!!!!!!.stragic forclosure works for me YAHOO

  13. Great article. Stuck right in the middle of this right now.
    My husband tried to negotiate with our mortgage lender. They were not so cooperative. At that time we were just 2 months behind and they wanted all or nothing. However, at the time….we couldn’t produce the full amount.
    Now, we have been served with foreclosure papers from their attorney and are looking at losing our house completely.

    We have the full amount owed (we think) to pay them….and are now at their mercy whether they accept or not. I’m learning that this is can be a huge game to lenders. But….what I don’t understand is HOW this can make good financial sense? If we lose the house….don’t they lose as well?
    Wouldn’t it benefit them to accept something from the borrower?

    Thanks for the tips.
    Barely hanging on…..in Indiana.

  14. Sdevries:

    In response to kick debt off … Keeping your debt ratio below 40% is perfect advice. Don’t over extend or even max your allowable debt amount. It is better to live below your means than to live on the line and not be able to afford a fast-food burger later on.

    In response to Kate … My times, unfortnately a bank is unaware of a homeowner being in ‘trouble’ until the request for a short sale is made. This process can take months (although this is starting to improve) for the bank to approve. Because of some home owners strategically ‘walking away’ to avoid huge declines in home values, banks have also started to take action. While a short sale will net them more money than a foreclosure, banks also don’t want a situation where someone is just walking away from a down investment (what your home really is) to cut temporary losses.

  15. Kate:

    What do you think about trying to rent out your house for at least the mortgage payment and trying to find somewhere cheaper to live? I know this might not be a good option, but it is something to consider.

    Also, I heard with short sales that the mortgage company or bank can sue you for the difference. Is that true? And don’t you need to discuss with your lender the lowest amount they will take before putting it on the market?

  16. Great insights Lynnae,
    I think these options are good to know for people in such a fix. For others who have not yet invested in a home, understanding the terms of the mortgage, and spending les than 40% of income on mortgage payment may eliminate this risks.(if the banks can maintain sanity)

  17. Great article Lynnae – Another potential bright spot for someone that loses their house is that until 2012 any forgiven debt may in fact not be taxable. Here is some more information for your readers… http://www.irs.gov/individuals.....%2C00.html

  18. Very good article. Thanks for putting the options out there. Hopefully we can find a way that fewer and fewer people will be forced to start looking into these options moving forward.

  19. Elle:

    It’s definitely a scary situation to be in. I think having a post on your options is important. I think the worst thing you can do is nothing. Contacting your lender can be stressful and may not be productive, but at least you’re working on getting a solution for this problem.

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