Problems keeping up with your mortgage payments? Recently got a notice from your mortgage lender about past due payments? First of all, don’t panic! Help is available.
You’ll want to start by learning about your options and considering ways to raise money to satisfy your obligations. The following tips for avoiding foreclosures can help you get back on the path to financial stability.
1. Take action immediately
Don’t ignore the problem. It will not go away on its own. The further behind you get on your mortgage, the worse the problem will get. Adding late payments, interest, and penalties to what you already owe makes it harder to reinstate your loan.
Contact your lender as soon as you are aware that you have a problem. Remember, lenders don’t want your home. They want to get paid. Most mortgage lenders are willing to work with you to pay your mortgage during rough times.
2. Read all notices from your lender
Read through all mail, emails, and notices from your lender. These notices offer valuable information about how to avoid foreclosure. They may offer you suggestions for solving the problem, as well as warnings and deadlines to be aware of.
Eventually, your lender may send you notices of pending legal actions. Ignoring those notices doesn’t help you in the foreclosure court.
3. Read the fine print
Go back and read your original loan documents. Pay attention to the parts explaining what happens if you miss payments. Learn about your state’s foreclosure laws and time limits by contacting a real estate attorney or your state housing agency for more information. Here is a list of local housing agencies to help you find a relevant point of contact.
4. Avoid the temptation to refinance
Before you enter any agreement to refinance or transfer your existing loan, make sure you know all your rights and foreclosure avoidance options. Don’t sign anything you don’t fully understand. Check with a lawyer, your lender, a trusted advisor, or a HUD-approved housing counselor (see below) before entering into any new deal. The last thing you need is to enter into a new loan agreement with an even higher payment.
5. Contact the federal government
The federal government agency called the U.S. Housing and Urban Development (HUD) supports homeowners facing foreclosures. Their website provides many tips to help homeowners facing foreclosure.
You can also follow HUD on social media for frequent updates and news, including on Twitter and Facebook.
6. Consider talking to a HUD housing counselor
HUD provides homeowners facing foreclosure with free or low-cost housing counselors nationwide. Their counselors help you understand the foreclosure process and your rights. They assist you in organizing your finances and even help you with negotiating with your lender. Locate a HUD housing counselor near you here.
7. Create a household budget
Perform a personal finance audit to see where you are spending money and where you might be able to save. Cut all unnecessary spending to save more for your mortgage payments. Here are some monthly expenses to consider cutting or reducing, if possible:
- Cable TV
- Dining out
- Movies and entertainment
- Club memberships
- Shopping for non-essentials
It’s also important to not take on any new debt, so avoid using your credit card. If you have no other choice, consider delaying credit card payments and debts not tied to repossessing your car or other necessities. Use these savings to pay your mortgage.
8. Get help from your personal network
An extra job by a member of your household to earn more income can really help. If you have children who are of working age living with you, ask them to chip in. Everyone living in your house could potentially suffer the consequences if you lose your home.
Also consider talking to other family members or close friends who may be able to lend you money to help pay your mortgage. But beware that you’ll also need to have a long-term plan to pay them back if you decide to keep your home.
9. Sell your assets
Take stock of any personal belongings you have that don’t carry sentimental value. Can any of them be sold for cash? Stop hanging onto to unnecessary assets such as:
- A second car
- A life insurance policy
They may not get you much, but every little bit helps.
10. Tell your lender about the extra efforts
Make your lender aware of these efforts to raise funds to help pay your mortgage. Lenders appreciate homeowners’ extra efforts to solve payment problems. They also help you demonstrate good faith if you plan to negotiate directly with your lender.
11. Avoid foreclosure prevention scams
While the number of foreclosures in the U.S. has gone down on an annual basis in recent years, there is still generally a strong interest among homeowners for how foreclosure works and what their options are (as shown in the graph below). With so many people searching for information on foreclosures, unscrupulous predators offering easy solutions are inevitable.
Ignore them. Don’t pay fees to foreclosure prevention companies. Some prey on unsuspecting homeowners with hefty fees to provide the same help a HUD housing counselor does for free or at a much lower cost.
Scam artists always hover around homeowners facing foreclosures making promises never kept and charging high fees for no help.
12. Avoid home foreclosure recovery scams
Another popular scam involves companies or individuals claiming they can immediately stop your foreclosure. But, they ask you to sign a legal document making them your agent or representative to act on your behalf.
Unknowingly, you may sign your home’s title to these scammers and end up as a renter because you no longer own your home! Never sign legal documents without consulting a lawyer.
13. Try a mortgage workout
Don’t expect to qualify for a refinancing of your current mortgage. That’s because your credit rating gets lower due to your late payments.
But, you might qualify for a repayment plan with your lender. This gives you a short-term breathing space. Your lender pushes part of your past-due mortgage into future payments. But, some lenders may demand some of your past-due paid upfront.
Better yet, try a loan modification where your lender lowers the interest rate and/or lengthens the payment period. Thus, you pay lower monthly payments for more years.
14. Take advantage of HUD programs assisting homeowners
HUD and the U.S. Treasury Department offer several programs to assist homeowners struggling to pay their mortgages. Start with the Federal Housing Administration (FHA) which provides mortgage insurance to their select homeowners’ lenders. They publish a useful brochure titled, “Save Your Home: Tips to Avoid Foreclosure.”
Also, HUD offers the following homeowner’s programs.
- Home Affordable Foreclosure Alternatives (HAFA) when your mortgage payments become unaffordable and you want to move into affordable housing. HAFA allows for a deed-in-lieu of foreclosure (you surrender your home’s title to your lender in return for forgiveness of your mortgage debt) or a “short” sale (the lender agrees to a sale for less than the mortgage owed). But, one of our prior posts here explains why these two options “aren’t good alternatives.”
- Home Affordable Modification Program (HAMP) helps homeowners avoid foreclosures. HAMP lowers your monthly mortgage payments by 31% of your verified pre-tax (gross) monthly income.
- Home Affordable Refinance Program (HARP) for homeowners current on their mortgage but unable to get traditional refinancing because the home’s value declined. HARP allows you to refinance into a new lower monthly payments program.
- FHA Special Forbearance program provides eligible unemployed FHA homeowners with no other means of income with a “forbearance period” by lenders. This includes suspended or reduced mortgage payments for up to 12 months.
- Home Affordable Unemployment Program (UP) allows unemployed homeowners to get a suspension or a temporary reduction of mortgage payments for at least 12 months while seeking new employment.
- Redemption period exists after your home foreclosure sale where you raise the funds to reclaim (buy back) your home. This requires paying the mortgage owed and costs created during the foreclosure. Find out about your state’s redemption periods here.
15. Sell your home
If all else fails your final solution is to sell your home. Assuming your home is worth more than your mortgage you may consider listing with a real estate agent. But be aware that hiring a real estate agent can lock you into a lengthy process that brings new expenses and stress.
Another option is to sell your house on your own to a cash buyer like Sundae. Sundae’s goal is to help you get the best outcome when you need to sell a dated or damaged house. We’ll help you understand your options and choose the path that’s best for your needs.