Take steps to try to save your home:
Contact your lender ASAP. Prepare to contact your mortgage company as soon as you know there is a problem in making your payments on time. Lenders want to work with their borrowers to resolve problems with temporary financial setbacks, but you may have more options if you contact them early on. Call the number on your monthly account statement or the payment coupon book and explain your financial situation, and then work with the lender to find a manageable payment solution.
If you're lender won't negotiate a payment arrangement with you, contact a housing counseling authority. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development's (HUD) website or by calling (800) 569-4287 begin_of_the_skype_highlighting (800) 569-4287 end_of_the_skype_highlighting.
Know where you stand financially before you give them a call. Review your original loan documents, your income, and your budget. Figure out your monthly expenses, and figure out which expenses can be cut out or cut back - such as eating out, entertainment, and club memberships, or luxury services. You'll be more likely to get a positive response from your lender if you show initiative in getting your finances back on track.
If you don't feel comfortable talking directly with your lender, contact a housing or credit counseling agency. They can help you examine your budget and determine the options available to you. They may also advise you on how to work with your lender, or even negotiate with your lender on your behalf.
Understand your options. Some solutions are designed as a temporary fix, such as a plan to make up for late and missed payments while keeping up with current payments. A long-term solution may be to refinance under lower interest rates to lower your payment, or possibly a loan modification. And sometimes the best solution is simply to sell the house and find a more affordable home. For information on different options, visit HUD’s website or Foreclosure Resources for Consumers for links to local resources.
Keep up with the new plan. Protect your home and your credit score by making your payments on time. Prioritize your bills and pay the most important ones first, such as your new mortgage payment. If your situation changes and you can no longer meet your new payment schedule, call your lender or housing counselor immediately.
Be aware of foreclosure rescue scams. Con artists take advantage of people who have fallen behind on their mortgage payments and who face foreclosure. These con artists may even call themselves “counselors.” Your mortgage lender or a legitimate housing counselor can best help you decide which option is best for you. For tips on spotting scam artists, visit the Federal Trade Commission's website, Foreclosure Rescue Scams. Report suspicious schemes to your state and local consumer protection agencies, which you can find on the Consumer Action Website.
Several options are available to you.
Some options provide temporary solutions for short-term problems, such as being one or two months behind in your mortgage due to illness. Other more permanent solutions address long-term financial difficulties, such as job lay-offs or long-term unemployment. If you have an FHA-approved loan, special loan modification programs may be available to you--ask your lender about them. Unfortunately, in some cases, keeping your home may not be possible--options for handling that situation are available as well.
Temporary solutions for short-term financial problems:
- Reinstatement: Lenders are often willing to “reinstate” your loan if you make up the back payments in a lump sum by a specific date. A forbearance plan may accompany this option.
- Forbearance: Your lender may be able to provide a temporary reduction or suspension of your mortgage payments for a short period, such as 3 or 4 months. After this time, your lender will work with you to create a repayment plan for the loan. You may qualify for forbearance if you have experienced a reduction in income (for example, if you have become unemployed) or an increase in living expenses (for example, higher medical bills). You must provide information to your lender to show that you will be able to stick with the new payment plan.
- Repayment plan: Your lender may agree to a plan that includes your regular monthly payments plus a portion of the past due payments each month until your payments are caught up.
- Loan modification: Your lender may be willing to rewrite the terms of your original mortgage loan to address your financial situation. A loan modification is designed to make your monthly payments affordable. Changes to your loan may include extending the number of years to repay and changing the interest rate, including changing an adjustable rate to a fixed rate. You may have to pay a processing fee to obtain a loan modification.
- Partial claim: If your mortgage is insured by a private mortgage insurance firm, your lender might help you file a claim. Some insurers provide a one-time, interest-free loan to bring your account up to date. The interest-free loan is due when you refinance, pay off your mortgage, or when you sell the property.
- Sale: Your lender will usually give you a specific amount of time to find a buyer and pay off the amount you owe on your mortgage. Your lender may require you to use a real estate professional to help you sell the property.
- Pre-foreclosure sale or short sale: If you can’t sell the property for the full amount of the loan, your lender may accept the amount you get for the selling price, even if it is less than the amount you owe. You may owe income taxes on the difference between the amount you owe and the amount you are able to pay back. Check with the Internal Revenue Service for tax information.
- Assumption: A qualified buyer may be allowed to assume (take over) your mortgage. Ask your lender whether this option is available to you.
- Deed-in-lieu of foreclosure: You may be able to “give back” your property to the lender, who then forgives the balance of your loan. Again, there may be income tax consequences, so check with the IRS. This option will not save your home, but it is less damaging to your credit rating. Some lenders impose certain restrictions on taking back property. For example, they may require that you try to sell your home at a fair market value for at least 90 days.
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