Help For Homeowners Late on Their Mortgage Payment

There are many options to homeowners experiencing difficulty paying their mortgage. What are they and how can they work for your situation?

Loan modification: The lender modifies your loan terms by either lowering your interest rate, making your interest rate fixed if you are in an adjustable rate mortgage (ARM), or extending your loan length from a 30 year to a 40 year term. The goal is to get your monthly payment to 31% of your gross(before tax) monthly income. To get started with this call your lender and ask them to consider your for the HAMP (Home Affordable Modification Program). This works best if you are currently employed in some capacity.

Forbearance: A lender takes what is past due including fees and divides it up into smaller payments over several months to help you catch up. Careful- you still have to make your regular mortgage payment on top of this. This is mostly for those with short term loss of work or short term illness who got behind but are now able to catch up or will be in the near future. To get started with this option call your lender and let them know your situation but make sure you can afford the payment PLUS your regular monthly payment.

Short Sale: Selling your house with an agent even though you owe more on it that is is currently worth. The lender pays the agents commissions and the bank will have to approve the sales price. You must be able to show 3 things: You have NO assets (aside from a 401k), you have a hardship, and you are late on your mortgage or you will be late soon if you do not sell. A hardship can be illness, death of loved one, divorce, unemployment, payment increase (due to ARM), extreme debt, transfer of employment. Note: Some lenders like you to go through the loan modification process first The new HAFA program is due to start in April of 2010.

Deed in Lieu of Foreclosure: Often referred to as a friendly foreclosure. This must be approved by your lender and getting their approval can be difficult. How does it work? The lender lets you send them the keys and sign over the deed to the bank. This can be detrimental to your credit. Call you lender and have them explain their process. The bank can still pursue you for a deficiency judgment at a later time.

Deed for Lease: Fannie Mae and Freddie Mac backed loans may allow this option. Here you sign over the deed and they allow you to rent the property back from them for a negotiated monthly rent.

Foreclosure: The bank takes back the property. The house is sold in an effort for the bank to recover some of what they are owed. You can be pursued for a deficiency judgment by the bank.

The first step you should take if you are having trouble paying your mortgage is call your lender…Let them know. Ask them to consider you for the HAMP loan modification program. Next, call a free consumer debt counselor and get their help reviewing your financial situation so you know what payment you can afford.

If your are unemployed and have no means to cover your mortgage consider getting roommates or renting your house and finding something more affordable. A short sale may enable you to get out from under your payments and rent for less until your are able to purchase again. There are housing assistance programs in most areas to offer financial help with housing expenses. Ask a friend or relative to let you stay with them until you can get back on your feet. The key is to be proactive, know your options and work with your lender. If you decide to do a short sale get a trained real estate agent. In any case the worst thing to do is nothing. Don’t allow your home to go to foreclosure, it can be emotionally traumatic and very damaging to your credit. There are plenty of other options.