If financial difficulties have put you at risk of missing a mortgage payment, familiarize yourself with the relief options available and be prepared to act quickly.
According to Freddie Mac, your first step should be to contact your mortgage company to determine which course of action makes the most sense for your circumstances. You may also want to review the terms below to better understand the best path forward based on your situation:
Options for Short-Term Hardships
If you can’t pay your mortgage, whether due to a disaster or other financial hardship, the most popular and widely available mortgage assistance is “forbearance.” This occurs when your mortgage company allows you to make a reduced payment or pause payment for a specified period of up to 12 months. When that period ends, you will make up the payments in one of several ways. The quickest way is through “reinstatement,” which means getting current on your mortgage by paying the amount due in one lump sum. Alternatively, you can set up a “repayment plan,” where you pay a little more each month on top of your mortgage. If you have overcome a short-term hardship but cannot afford these options, a “payment deferral” may be a good solution. This brings the mortgage back to “current status” by deferring the missed payments to an interest-free account that is due when you sell or refinance your home or pay off your mortgage. You will not be required to make monthly payments on the deferred balance until the payoff date.
Options for Long-Term Hardships
If you anticipate long-term financial struggles, you may want to talk to your loan servicer about a “loan modification.” This written agreement will permanently change one or more terms of your original loan contract to make it more affordable and sustainable.
If homeownership is no longer affordable for you, there are strategies to help you avoid the costly impacts of foreclosure. One of them is “selling with equity.” With this option, you can use the proceeds from the sale of your home to pay off any remaining mortgage debt. If the home’s value is greater than what you owe, you keep the excess. Alternatively, you can voluntarily transfer the title of the property to the mortgage company in exchange for the cancellation of your debt and a graceful exit from your home. This maneuver is known as “deed-in-lieu of foreclosure.” Finally, if you have exhausted all other options, a “short sale” may be your best choice. This refers to selling your home for less than you owe. It also waives your negotiating power over the sale price of the property. With a short sale, you will not see proceeds from the sale and must wait a certain period of time, which can range from 2 to 4 years, before qualifying for a new mortgage.
Getting Help
Housing counselors are much more than a resource for homebuyers. They can also help current homeowners manage debt, rebuild credit, and work with their loan servicers to avoid foreclosure.
Being a homeowner can be complicated, especially when you face financial difficulties. But specialized help, available at little or no cost, can assist you in navigating turbulent financial waters.
Source: StatePoint