What to do when you’re behind on mortgage payments
There’s a great chance that someone on your block is in foreclosure, behind on their mortgage payments, or simply cannot afford their home (which will most likely lead to foreclosure). So what do YOU do if you fall into this situation? HelpSaveMyDollars.com has compiled a few suggestions on how to fight your way out of a foreclosure quarrel!
First and foremost, you cannot ignore the situation. If you are one, two or even three (hopefully not more!) months behind on your mortgage, that’s a sign that foreclosure may be coming your way, as bad as that sounds! So if you’re behind, don’t pretend that everything is good and dandy, because it’s not. Chances are you’ll be hearing from your lender stating that foreclosure is imminent. In this case, you MUST call the lender. You should also call the lender if you are behind on mortgage payments, or if it is becoming increasingly difficult for you to make payments. In this call to your lender, try to negotiate a deal (for more negotiating tips, visit our section on negotiation, Bargaining 101). Remember, your lender/bank is in the loan business, not the real estate business—they don’t want your home! Tell the lender that you’d like to work out some sort of a deal/plan with them in order to avoid foreclosure at all costs! Here are a few things you might want to ask your lender:
1. Can I do a loan modification? A loan modification simply means you and your lender will agree on new terms of the loan. These new terms could mean a new interest rate (if you currently have an adjustable rate mortgage, where your interest rate fluctuates, under a loan modification, you might be able to change that to a fixed interest rate) or a different time period/life of the loan. Unlike refinancing, loan modifications are done without closing costs (which can be 1-2% of the loan amount. Expensive!).
2. Can I do a short sale? Here is a simple example of a short sale: Let’s say your home is currently worth $200,000, but your mortgage amount is $300,000. This means that even if you sell your home, you’ll still owe $100,000—That’s no good! This is where a short sale would come in handy. A short sale would be that you would sell your home for the $200,000 and the bank would simply “forget about”, or absolve the $100,000 that you really owe them. This is a great option because you can walk away from your home and have a fresh new start, without the perils of foreclosures. Now, you don’t get any money for your home, it all goes to the bank. But you also don’t owe anything either (where if the bank didn’t agree to a short sale and you owed $300,000 on the loan and sold the home at market value, which in our example is $200,000, you would still owe the $100,000). Lenders may be reluctant to agree to a short sale, but try to convince them. (Note: The numbers are just an example and for demonstration purposes. As long as your mortgage amount exceeds the market value of the home, you’ll most likely qualify for a short sale).
3. WORK WITH ME…PLEASE!!! – This may sound strange, but if your lender won’t agree to a loan modification or short sale, try to find out if there is anything the lender can do. Try to ask if maybe they can just lower your interest rate or try to refinance and have them lower the closing costs. Be creative!
Now you can also sell your home if you’re facing foreclosure. Again, the short sale would be best, but if your lender won’t let you do a short sale, try to sell your home and get as much money as you can. Remember: it’s a good idea to sell your home by owner, so you can avoid the real estate agent’s fee.
Let’s say your bank is extremely inflexible and seems as if they don’t care about your situation (this happens a lot). Try contacting your Senators, Congressmen or local Assemblymen to see if they can be of assistance to you. Explain your situation to them to see if they can contact your bank or a federal or state agency on your behalf.
Taking action is essential when you are about to experience a foreclosure. Remember, you not only lose your home with foreclosures, your credit score plummets too. The fact that you were foreclosed upon will remain on your credit report (a compilation/list of the history of all your financial transactions) for about 7-10 years. There is a way out of foreclosures if you are proactive. Only you can get yourself out it!