5 Strategies When You Can’t Afford Your Mortgage Payment
One of the most traumatizing or frustrating events that could happen to a person is having to accept that fact that you can no longer afford your mortgage payment.
It only takes one major financial setback or life-altering event to trigger a mortgage payment problem, even if you’ve proven you’re capable of being responsible with money. Some examples of this is, you or your spouse losing a job, divorce, or a debilitating illness that limits the number of hours you are able to work.
It’s hard facing the truth of the situation, and it’s a terrible idea to ignore the problem. If you do, the result could spiral out of control. However, you must take the necessary actions required to make sure things don’t go from bad to worse when you all of a sudden can’t afford your mortgage. Selling your home is an obvious answer to this problem, but there’s no guarantee of finding a buyer. The house may end up sitting on the market for months as your financial problem worsens.
This very big and serious problem isn’t going to solve itself. If you can no longer afford your mortgage, here are five possible solutions to help you get out of this difficult situation.
1. Refinance Your Mortgage and Lower Your Rate
The probability of you being able to refinance when you’re unemployed are slim to none. Although, if you do have a source of income and are in dire need of lowering your monthly payments, speak to your trusted mortgage lender and see if you qualify for refinancing on your mortgage. Be prepared and know that going in you’ll have to complete a new mortgage application, and the bank will verify your income and do a thorough check of your credit history. A cheaper mortgage rate and monthly payment will ease the stress and make it easier to afford your mortgage.
2. Rent Out the Property
If selling your home and refinancing is out of the question, your best option is to find a tenant for the property and then move into a cheaper home that you can afford. Just be aware that being a landlord can be costly; so tread lightly when considering this option. When you’re renting your home, remember that you’re still responsible for any major repairs and maintenance that comes with it. If the tenant moves out at the end of his or her lease, and you aren’t able to find another tenant right away, you will be stuck with two house payments. It is extremely important to weigh the pros and cons and then make your final decision on whether renting the property makes financial sense for you. Also keep in mind, for this to work you will need cash reserve.
3. Apply for Forbearance
In some cases, the inability to make mortgage payments is very temporary. Actively looking for a job, after getting let go, or maybe you’re only experiencing temporary disability. If you can predict that your financial situation will improve within the next six months or sooner, and you’re only looking for short-term mortgage help, that is the best time to speak to your lender and see if you qualify for mortgage forbearance.
Forbearance is when you’re mortgage lender is able to suspend your payments for a short period of 3 to 6 months (depending on your bank), or the bank may choose to temporarily lower your mortgage payment.
4. Request a Mortgage Modification
If don’t or aren’t able to qualify for refinancing, it might be possible that you meet the bank’s requirement for a mortgage modification. This process is similar to refinancing, but unlike refinancing a mortgage, a modification only adjusts the terms of your current mortgage loan to create an affordable payment solution. Refinancing involves applying for a new mortgage to replace the old one.
Sadly, a mortgage modification isn’t available to everyone and it should only be considered a final effort to save your home. Every bank has different guidelines, and some banks will only offer a modification if you’re more than 30 days past your payment. Plus, you have to go through the process of proving that paying your mortgage is difficult and you’re going through a financial hardship. Your mortgage lender will take a look at your income and current expenditures to see if you’re eligible for a mortgage modification.
5. Short Sale the Property
If you are in a situation where you can’t afford your current mortgage and need to sell your home or property as soon as possible to avoid foreclosure, an option is to short sale! A short sale is where the bank gives you permission to sell your home or property for less than you owe. It’s an easier way out than if you owe a considerably large amount more than what your home is worth.
Compared to a modification and forbearance, is this situation, you have to prove that there is financial hardship. Since the mortgage lender forgives a portion of your debt, a short sale will slightly damage your credit score. Ask your lender how much it will, because having a good credit score affects your buying decisions in the long run. After a short sale, you typically have a waiting period of two years before you are eligible to buy a new property.
Not being able to afford your mortgage is a situation that no one wants to be faced with, but there are possible solutions. It’s important to speak with your mortgage lender, and thoroughly explain your situation. Don’t be afraid to seek advice on the best way to handle your finances and payment problems, but most importantly payment solutions.