When you sign for a mortgage, you’re getting a lot of new things. You’ll be living in a new house and opening a new chapter in your life.
However, you’re also getting a new obligation in the form of a bill you’ll need to pay monthly for decades. That assumes you’ll always have a steady job with a regular paycheck, and most Americans are only too aware that isn’t always a sure thing. What happens if you go through a period of financial hardship and can’t pay your mortgage?
If you find yourself unable to make your monthly loan payment in full (or at all), don’t panic. You can take steps that will help you keep your head above water and avoid foreclosure until you can get back on your feet financially.
Contact Your Mortgage Lender
As soon as you know you won’t be able to make your mortgage payment in full, the first step to take is call your mortgage lender. Understandably, this is not a step most people want to take—telling someone you’re having financial troubles is at best embarrassing, and at worst you feel like you’ve failed at the most basic task of adulting.
You have to contact your lender, though. Otherwise, your account will be marked as delinquent, and the lenders will have no idea whether you’re having financial difficulties or just trying to get out of paying what you owe. Instead, get in front of the situation and be up front with the lender about why you’re having trouble paying your mortgage.
You should also know that you and your mortgage lender have the same interest in avoiding foreclosure. Foreclosures are expensive and time consuming, and they usually cause lenders to lose money. A mortgage lender would rather work with you to get you back on track with your mortgage payments, and they have a few ways to do that.
Get a Forbearance
If you’re suffering from a temporary setback like a medical emergency, lenders might grant you a forbearance, also known as a reinstatement. This means your payment is either reduced or completely suspended.
A forbearance can supply you with some much-needed breathing room, but it doesn’t let you off the hook. At the end of the forbearance period, you’ll have to repay the outstanding balance. This might make your budget uncomfortably tight for a while, but if you only need a month or two to get back on your feet this might be your best option.
Negotiate a Payment Plan With Your Lender
If you’ve had some financial issues but have gotten back on your feet, like getting laid off and then finding a new job, you might want to negotiate a payment plan with your lender. Repayment plans take the amount you’ve accrued, divide it by a number of months and add that amount to your regular mortgage payments. After you’re caught up on your mortgage, you resume making your regular payments.
Whether or not your lender offers you a repayment plan depends on your income and your ability to catch up. Make sure you can provide proof of your income and present them with a budget that incorporates your extra payments to show you’ve given serious thought to how you’re going to catch up.
Modify or Refinance Your Loan
If you just can’t catch up through a repayment plan, talk with your lender about getting your mortgage modified. Lenders might be able to lower your interest rate, extend the term of the loan to reduce your monthly payment or extend the balance by adding the amount you owe to the general principle.
If you want to get your loan modified, you’ll have to prove you’ve gone through a financial or personal hardship. You’ll also have to prove that you’ve gotten through your financial hardship and can afford the new payments.
You might also be able to lower your monthly payments if you refinance your loan. When you refinance your loan, you take out a new loan that will result in you paying less each month. However, you’ll also have to pay closing costs again, including lender fees, attorney fees, recordation fees and title fees, which may very well wipe out any money you save.
Meet with a Housing Counselor
Trying to decide on which option is best for you might seem overwhelming, especially if you’re still trying to get back on your feet. If you’re struggling to figure out which option talk with a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD) to help you figure out your best course of action. Many of them will also not charge you much, or anything at all, for their services.
If you’re going to meet with a housing counselor, though, make sure to do your research beforehand. Investigate specific counselors, and make sure you select someone who is HUD-approved. A lot of unscrupulous scammers will be happy to offer their services to you, charge you an exorbitant amount of money and then disappear, leaving you worse off than you were before.
Get Support During Financial Hardship With First Alliance Credit Union
Falling behind on any loan is a cause for concern, but falling behind on a mortgage is downright terrifying. If you have fallen behind on your mortgage, reach out to your lenders and get their help figuring out what options you have to catch up. You can also reach out to a HUD-approved housing counselor who will help you figure out your best options.
If you’re a member of First Alliance Credit Union, you can also use the services we offer to catch up on your mortgage. You can use the Anytime Skip a Pay form to give you some temporary relief on any auto loan or personal loan so you can channel those payments toward your mortgage, and our expert lending advisors will help you select the best option for you to catch up on your mortgage. First Alliance’s resource center also offers financial guides, such as our beginner’s guide to budgeting and our beginner’s guide to saving that will help you manage your money effectively, and calculators that will help you figure out anything from potential monthly mortgage payments to reaching your savings goals.