Category Archives: MORTGAGE

5 Things to Consider When You Can’t Pay Your Mortgage

The Coronavirus pandemic continues to be a novel experience with far-reaching repercussions. In addition to the devastating toll on peoples’ health, the virus has upended our daily lives, causing wide-spread economic disruption and unease for billions of people.

In the US, more than 26 million people have already filed for unemployment, and a $2 trillion government stimulus package is just the first step toward restoring solvency to people who are out of work and looking for answers.

This is especially true when it comes to many peoples’ most significant financial obligation: their mortgage. According to the Boston Globe, “The homeowners skipping payments because of lost jobs or income represent 5.5 percent of borrowers with $651 billion in unpaid principal.”

In other words, if you find yourself struggling to pay your mortgage right now, you are not alone.

Of course, the short and long-term consequences of defaulting on your mortgage can have far-reaching repercussions that are especially disruptive to your general and financial well-being.

If you are experiencing financial hardship because of the COVID-19 pandemic, or even if you are just unable to pay your mortgage, there are options available to support you during this time.

Here are five things to consider if you can’t pay your mortgage right now.

1. EVALUATE YOUR BUDGET

Nearly a third of people don’t maintain a budget, and even the most fastidious financial planners may be working with outdated information. When things are going well, it’s common for “wants” to masquerade as “needs.” To maintain a healthy financial outlook, now is the right time to evaluate your budget, prioritizing critical expenses and identifying opportunities to save money.

If you haven’t before, now’s the time to create a true and thorough budget. If you’re comfortable leveraging technology to help you understand your financial situation, there are plenty of money management apps available that can help you pull together a budget.

2. REQUEST A FORBEARANCE

On March 27, the CARES Act was signed into law. Included in the bill is a provision offering a six-month mortgage forbearance for people negatively impacted by COVID-19. The guidelines apply to all government-backed mortgages, which covers approximately 65% of all mortgages.

During these unprecedented times, all lenders have the same goal: they want to keep people in their homes, and mortgage forbearance options might be available even for loans not covered by the CARES Act.

Like many organizations right now, lenders are short-staffed, leaving customers with extremely long customer service wait times. Therefore, if you are or think you might soon experience a financial hardship that prevents you from paying your mortgage, now is the right time to reach out.

To attain a loan forbearance, contact your loan servicer directly to make the request. Unfortunately, this process isn’t standardized, and different loan providers will have different procedures for obtaining a forbearance.

However, a mortgage forbearance comes with significant caveats that borrowers should consider before requesting a forbearance.

3. CONSIDER REFINANCING

For some borrowers, refinancing a mortgage can be a way to lower monthly payments while taking advantage of historically low interest rates. However, homeowners will want to rigorously vet this path before proceeding.

Most prominently, refinancing is often contingent upon equity, with banks looking for borrowers to have between 10 and 20% equity before refinancing. This will restrict this option to those with home equity and those who can carry the immediate costs of refinancing.

For instance, closing costs often range between 3-6%, which means borrowers will need significant cash-on-hand to take advantage of this option. Also, refinancing carries other costs, including appraisals, inspections, attorney fees, and other expenses.

Of course, under the right circumstances, refinancing can be a compelling opportunity for borrowers to lower their monthly payments, making their mortgage payment more tenable and freeing up funds for other priorities.

4. SELL YOUR HOME

In the near term, selling your home may not be a right-now strategy for relieving your mortgage burden, as social distancing and stay-at-home orders related to COVID-19 will complicate this process.

Even so, before the crisis, home sales were surging, with many moving off the market in just days or weeks. It’s unclear what impact COVID-19 will have on home sales moving forward, but if your mortgage is unsustainable, now is a great time to begin preparing your house for the market.

Downsizing your space or moving to a more affordable area can relieve the financial pressures posed by your current mortgage payment. Therefore, while selling your home can’t provide immediate relief, it may be a compelling opportunity to stabilize your finances moving forward. This is particularly true if you find yourself underemployed after the pandemic passes.

5. SUBLET YOUR PROPERTY

Similar to home sales, subletting your property or harnessing your home for additional income through temporary rental services, like Airbnb, can be a way to generate extra income from your house that can help you make your mortgage payment. Undoubtedly, relying on renters can be fraught with difficulties, but it can be a helpful opportunity for some.

GET THE HELP YOU NEED

During times of global crisis, maintaining your mortgage payment is both incredibly important and uniquely stressful. If you need help navigating your options or finding the best path forward, our trained counselors are ready to provide support. In addition to HUD-approved housing counseling, Money Management International offers other free and low-cost services covering a variety of challenges. Contact us today to get the help and guidance that can help you thrive through this time of crisis.

What Does It Mean to Go into Foreclosure?

The following is presented for informational purposes only.

Homeowners may fall behind on their mortgage payments for a variety of reasons. Failing health, the loss of a job, their business isn’t doing well, a divorce, or perhaps a combination of several factors that makes it impossible to pay every bill.

If you took out a mortgage, you borrowed money to purchase your home and put up the home as collateral. Foreclosure is the legal process that allows the lender to repossess a home when borrowers fall far enough behind on their payments.

Facing eviction and losing the time, equity, and love you’ve put into a home can be a sad and scary prospect. But it’s important to remember that even if you’re months behind on your mortgage payments, there may be ways to remedy the foreclosure and keep your home. Or, if your goal is to move to a more affordable home, there could be alternatives to foreclosure that can save you money, time, and may not hurt your credit as much.

In either case, understanding the process can help homeowners identify where they stand and their options.

WHAT HAPPENS DURING FORECLOSURE?

Foreclosures can be governed by a combination of federal, state, and local laws. The foreclosure process, relevant terms, laws, your rights, and the timeline can, therefore, vary depending on where you live and the agreement you have with a lender. However, the processes tend to follow a similar path:

THE BORROWER MISSES A MORTGAGE PAYMENT

Missing a single payment won’t immediately lead to losing your home, but it’s the first step towards a foreclosure. Once a borrower misses a payment or pays less than the total amount due, the mortgage could become delinquent.

The lender, mortgage service or a collection agency may start reaching out to the borrower to inform them of the missed payments. It may also notify you of different options you have to help avoid foreclosure and keep your home.

THE LENDER SENDS A DEFAULT NOTICE

The timeline can vary, but often around three to six months after you miss a mortgage payment, the lender will send a letter or notice that your loan is in default. The notice may also tell you how much you currently owe, including past-due payments and fees, and how long you have to bring your loan current.

The notice could also be posted on the door of the home and a record of the notice might be filed with the local county office. You may see this letter referred to as a Notice of Default or lis pendens (“suit pending”).

PRE-FORECLOSURE BEGINS

If you don’t bring your loan current by the deadline, the lender can begin the foreclosure process. The pre-foreclosure period may be one to several months long, during which you still have options to avoid the foreclosure by repaying the amount owed, selling your home, modifying your loan, or coming to another agreement with your lender.

THE FORECLOSURE PROCESS OFFICIALLY STARTS

The lender may be able to pursue different types of foreclosures:

JUDICIAL FORECLOSURE

A judicial foreclosure is an option in every state, but isn’t required everywhere. The judicial foreclosure process goes through the courts, and you will be sent a notice of the pending lawsuit. If you don’t respond, the lender will win a default judgment. Generally, if the lender wins the suit, an auction date for the home will be chosen, and the local court or sheriff will then sell the home at the auction.

NONJUDICIAL FORECLOSURE

Some states allow lenders to pursue a prescribed foreclosure process outside of the courts. The process can vary, but often takes at least a month and involves one or more notices informing you of how much you owe, how you can bring the mortgage current, and when the home will be put up for sale.

THE HOME IS OFFERED FOR SALE

Either the lender, a representative of the lender, a local court, or the sheriff may sell the home via an auction. Or, in some cases, the lender simply takes ownership of the home. The lender will also become the owner if the home isn’t sold at the auction.

Depending on the state, you may have the right to repay the entire amount due and reclaim your home as long as the auction hasn’t ended. In some states, you may even have the right to buy the home back after it was sold at auction.

THE BORROWER IS ASKED TO LEAVE OR IS EVICTED

Once a new entity takes ownership of the home, you may receive a notice that you have to leave the house. You could have anywhere from a few days to several weeks to vacate, and sometimes a new owner will offer you money to move out quickly and leave the home in a good condition.

If you don’t leave, the new owner may take steps to forcibly evict you. The eviction process could also take several days to several months. Although you’ll be able to stay in the home longer, having an eviction on your record could make it harder to find a rental in the future.

YOU MAY HAVE OPTIONS IF YOU’RE FACING FORECLOSURE

Foreclosure doesn’t happen overnight, and the lengthy process isn’t a desirable outcome for borrowers or lenders.

Generally, acting sooner is better than waiting. Even if you haven’t missed a payment yet, reaching out to your lender and letting it know you expect to have trouble in the future could be a helpful first step that leads to avoiding foreclosure proceedings altogether.

Your lender may have programs that can temporarily, or sometimes permanently, lower your monthly payments. The U.S. Treasury Department and Department of Housing and Urban Development (HUD) also have many programs aimed at helping borrowers avoid foreclosure.

As the process and programs can vary depending on where you live and your mortgage agreement, speaking with a trained professional is often be a good idea. Some attorneys specialize in housing cases, including foreclosure defense, that may be able to help.