Purchasing a home is probably everyone’s dream. The numerous mortgage lenders make it easier for you to obtain the required funds needed to buy your home. However, the condition is that you will have to make your monthly mortgage payments on time.
Things may not remain the same way they were when you purchased your home. There may come a time when you may not be able to afford your mortgage payments any more. A couple of defaults and your lender may put your home on foreclosure. That is the last thing you may want, considering the efforts that went in to purchase that dream home you always wanted.
It pays to understand your options when you are not able to afford your mortgage payments anymore.
Option #1: Rent out your home
If you can find another place to stay, you can probably rent out your home and pay up your mortgage payments. If the real estate market is not doing too good you may even have to take a loss on the difference of the mortgage payment and the rent that you receive. If this option works there is nothing like it since this doesn’t involve any legal formalities that can be painstaking. Also, you will still have your home intact, although you won’t be living in it.
Option 2: Get a loan modification
You can approach your mortgage lender and convince him to agree for a loan modification. Although a lengthy procedure this can result in a permanent change in a couple of terms of your loan, making your monthly mortgage payments as affordable as possible.
You can visit the website of U.S. Department of Housing and Urban Development for more information on how to apply for a loan modification. The rules pertaining to loan modification keep changing every now and then. Therefore, it seems wiser to get in touch with one of the attorneys who are specialized in loan modifications before applying for one.
There is quite a lot of paperwork involved in loan modification and most of these pertain to the proof of your earnings so as to convince the lender that you are no longer able to afford your monthly mortgage payments. Also, there is a three-month trial period during which you will have to prove that the monthly payments according to the amended terms are working for you. During this period you may even have to work hand-in-hand with the lender’s specialist. All this seems a lot of work indeed. However, there are loan modification counselors who can make your job a whole lot easier.
Loan modification counselors are those who are well-aware of the formalities and regulations pertaining to loan modification. They are available everywhere and some even try and get in touch with the borrowers directly by purchasing loan modification leads. Not only do these professionals help you in preparing the required documentation, they also enable you to convince your lender to accept your loan modification proposal.
When going for a loan modification, your options are:
- Forbearance: In this option there is a forbearance period during which the lender either suspends or reduces your monthly mortgage payments. However at the end of this forbearance period you will have to pay back the full difference, either as a lump sum or in installments. If you are not able to do that you will have to convince your lender to extend the forbearance period.
- Interest Rate Reduction: In this option the lender agrees to reduce the rate of interest on your loan, either for short period of time or throughout the term of your loan. The interest income thus given up by the lender will be added to the principal amount of your loan.
- Loan Extension: The term of your loan would be extended in this option. Hence, if you have a 30 year mortgage, it could be extended to a 40-year loan.
- Partial Claim: You can go for this option, if your loan is insured by the FHA. You should have missed out on your payments for four months to be eligible for this loan modification option. If you can prove that you can afford the full mortgage payment but not the missed payments, you can get your missed payments (and fees) converted into a zero-interest second mortgage that becomes due for payment only when you sell your property or refinance your mortgage.
- Principal Deferral: Apart from reducing the interest on your payments, the lender will also cut down the amount of principal that is due with every payment. This deferred principal becomes due for repayment only at the time of maturity of the loan, sale of property or refinance of existing mortgage.
- Reinstatement: If you can make your delinquent loan good in one payment, the lender can reinstate your mortgage. In this option you do suffer some amount of credit damage; but you can avoid a foreclosure.
- Repayment Plan: In this option, you can work with your lender to come up with a repayment plan that can help you get current on your payments as well as fees. You ideally make an upfront payment to some extent of the delinquent loan and the remaining amount would be added on to your monthly payments till your debt is current.
When a loan modification counselor gets in touch with you through loan modification leads, you can find out which option works well for you and make the necessary preparations to modify your loan.
Option #3: Go for a short sale
If you don’t want your credit to be affected and yet want to avoid a foreclosure, this could be a good option. You have to work with your lender and agree upon a certain market price for your property that is below your mortgage value. You sell the property, let the lender receive the funds and make him wipe out your mortgage debt.
Option #4: The Foreclosure
Being a very painful option, this will also have its effect on your credit report for the next decade or so. However, this is the last resort when nothing works.
These are the options you can choose from when you are not able to afford your mortgage payments. The best way, however, would be to make efforts to improve your financial situation as soon as possible.