Point of Interest
If you’re a homeowner who’s struggling to make your mortgage payments, there are a number of options available to help you out. Some let you stay in your home, and others will help you get out from under the loan you can no longer afford.
As the effects of the COVID-19 pandemic cause economic uncertainties across the nation, it’s causing concern among homeowners about whether they’ll be able to pay their mortgage notes over the long haul.
If you’re struggling to figure out what to do about your mortgage payments, you aren’t alone and there are options. While maintaining timely payments should be your primary goal, developing a plan to deal with the potential for missing a mortgage payment should also come into play.
If you’re at risk of missing a mortgage payment, the tips below can either help you stay in your home or help you to sell your home before the issue compounds.
What should I do if I miss a payment?
The idea of missing a mortgage payment can be incredibly scary to homeowners who have invested money and time in their homes. Not only do missed mortgage payments put you at risk of foreclosure, but they can also damage your financial stability.
Lenders report missed mortgage payments, which show up as a delinquency on your credit report. These blemishes stay on your record for up to seven years. To mitigate the damage, it’s important to bring payments current as quickly as possible.
But, getting current on your home loan can be difficult or impossible if the financial resources to do that simply do not exist. In these situations, the best course of action is to contact your lender as soon as possible to discuss the options available to you.
By contacting your lender before missing a payment, you maximize the options available to you. Be prepared to discuss:
- An estimate of current and future income
- An estimate of your current expenses
- Your most recent mortgage statement
- The cause for the current hardship
If you include your lender in a conversation about your mortgage payments, you’ll gain insights into all options available to you, including, in some cases, lender programs or deferral plans that can help you get some time to figure out a solution.
What to do when you’re unable to pay for your mortgage
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, homeowners with federally-backed home loans are offered mortgage relief for their monthly mortgage payments when they face hardships due to the pandemic. These options include payment deferrals and other solutions offered by the lender.
Eligible mortgage-relief loans include those backed by Fannie Mae, Freddie Mac, the Veteran’s Administration (VA), the Federal Housing Administration (FHA) and the U.S. Department of Agriculture (USDA).
So, if you find yourself saying, “I can’t pay my mortgage. What are my options?” — you’ll find some ideas below to help you carve the best path forward — whether that’s keeping or selling your home. Whatever works for you.
Options to keep your home:
- Forbearance — Forbearance is offered under the CARES Act to certain mortgage holders, and it’s a temporary reduction or suspension of your loan payments for a period of up to 12 months. While forbearance doesn’t reduce the overall amount you owe on your loan, it does offer a reprieve on the monthly payments for a certain period of time and allows you time to get back on your feet.
You can request forbearance from your lender directly, and in many cases, you won’t need a mortgage covered under CARES to do so. Lenders are offering these types of options to homeowners in many cases, so even if your loan falls outside of the protected loans under CARES, you should still make a call to your lender.
- Loan refinancing and modification — Both refinancing and modification establish new terms around your loan repayment obligations. These can be options in some cases to help you make your home loan more affordable, and you can request them directly from your loan servicer.
Be aware, though, that both loan refinancing and loan modifications essentially change the parameters of your original like to establish a new loan with new terms, and the lenders include closing costs as part of the loan process, which you’ll be expected to pay.
Closing costs typically range from 3% to 5% of the total loan amount, which translates to a cost of $6,000 to $10,000 on a $200,000 loan.
There could be the option for a no closing cost loan, but borrowers who receive these types of loans generally either pay a higher interest rate or roll the closing costs into the loan repayment schedule.
- Repayment plans — Lenders can help you establish a repayment plan to make up for the payments you’ve fallen behind on, but you’ll have to give them a call to get things going.
With most repayment plans, you add a portion of the delinquent amount you owe to your upcoming payments. This gives you the opportunity to roll delinquent payments into future payments and makes it more affordable to get caught up, rather than finding a way to pay what you owe in one lump sum.
- Renting out your home — If you can rent your home for more than the amount of your monthly mortgage payments, it could be a viable option to allow you to keep ownership of the home — though you’ll have to find a cheaper or free place to live since you’ll be handing the keys over to someone else.
Renting out your home could make your monthly mortgage payments easier, but remember that ownership of the home means you’re still responsible for things like the upkeep, property tax and insurance associated with the home.
- Government or nonprofit options — Some state or local governments — or even nonprofits — have help in place for homeowners who are struggling to make their mortgage payments due to unforeseen circumstances. You can look into these mortgage relief programs in your area to see what options are available to you.
There may be a program that’s a good fit, or you may be offered resources with information on how to get the help you need. Either way, you should take advantage of the programs if they’re available to you. It’s what they’re there for.
Options to sell your home:
- Traditional sale — Selling your home if you can’t afford the mortgage payments could offer you the best option for paying off your mortgage. If you’re behind on your mortgage payments but your lender hasn’t started the foreclosure process, you may want to consider placing your house for sale to unload it and pay off what you owe.
While you’ll no longer own the property, selling your home for as much or more than is remaining on your loan will get you out of a sticky situation with your lender and make it possible for you to find a place you can better afford.
- Short sale — Short sales are used in cases where a homeowner owes more on the home loan than it’s worth. In a short sale agreement, lenders agree to accept the offer amount from the buyer as payment in full for the original loan. If this is the route you want to go, you’ll need to contact your lender to find out if it’s possible to do so.
Short sales negatively impact your credit score and show up as “settled” on your credit report, but it will keep you from drowning in mortgage payments you can no longer afford.
- Deed in lieu of foreclosure — A lender may agree to accept your deed as payment of your mortgage in lieu of foreclosing on your home, but you’ll need to work with them to find out if it’s possible to do this.
While this option negatively impacts your credit, it releases you from your mortgage obligation and lets the lender make whole on the amount owed by selling your home.
- Foreclosure — If you’re several payments late on your home loan, you’re running the risk of foreclosure. Under a foreclosure, the lender will have to go to court to take possession of the home, which is then sold to a buyer by the lender with the approval of the court and/or other debtors.
A foreclosure heavily impacts your credit in a negative manner, and you’ll want to avoid it if at all possible. You want to avoid this route if at all possible, as your lender may work with you on some other fixes that will do less damage to your credit or finances instead. But again, you’ll need to contact your lender to find out.
The final word
As the nation struggles with the effects of the COVID-19 pandemic, lenders are working to minimize the economic damage by finding ways to extend mortgage relief to homeowners.
There are a number of options available if you’re struggling to pay your mortgage, from lender programs to other options you can take to get out of your home loan. You need to work with your lender if possible as soon as you fall behind on your payments, and from there, you can make the best decision for your situation.