What to Do if You Can No Longer Afford Your Mortgage
It’s not uncommon for people to not be able to afford their mortgage. But what does it mean when someone can’t afford their mortgage?
It means that the person is unable to make the full payment each month. They may be experiencing financial difficulties or they might live in an area where housing prices are very high. Either way, it is best for the individual to contact a financial advisor who can assess their situation and offer advice on how they can overcome this financial obstacle.
Some advice they might give you is below.
Refinance
If you are struggling to keep up with your mortgage every month, you might need to consider refinancing to get better terms. However, there are some risks involved in refinancing.
The first risk is that your score might drop. If you’ve been late with payments or have missed them altogether, lenders will lower your credit score when they see the information on your credit report. Lowering your credit score can make it difficult for you to refinance and get a better interest rate because lenders worry that they won’t be able to get their money back from you.
The second risk is that even if your score increases after refinancing, some lenders will look at the higher debt-to-income ratio and still reject your application for a loan.
Get a Loan Modification
If the borrower can no longer afford the mortgage, they may be able to apply for a loan modification. A modification changes some of the terms of the original mortgage agreement in order to make it easier for the borrower to make their payments and keep their home.
The types of modifications that are often offered are: reducing the interest rate, extending the length of time before any interest accumulates, reducing monthly payments by refinancing, and forgiving a portion of debt through a short sale or foreclosure.
A lender is more likely to offer these types of modifications if the borrower has been making their payments on time and has a good credit history.
Get Forbearance
Forbearance is a form of relief that can help homeowners keep their homes while they’re waiting for a more permanent solution.
If you qualify for forbearance, the lender will allow you to pay reduced or no monthly mortgage payments. You usually have to pay a fee that’s usually between $250 and $500. Forbearance is only available if there’s enough equity in your home to provide some protection for the lender.
Forbearance is an option if you’re having trouble meeting your mortgage payments because of unemployment or underemployment, temporary injury or illness, or certain hardships like divorce or death in the family.
Short Sell It
In an emergency situation, there are a few options to consider if you can no longer afford your mortgage payments. One of these options is a short sale. A short sale is a type of foreclosure where the lender agrees to accept less money from the home sale than what is owed on the mortgage.
A short sale can be used as a last resort to avoid foreclosure but it has many drawbacks as well. For example, if you have equity in your home, then you will see it evaporate through higher taxes and that may not be an ideal option for those who have other assets that they want to protect from creditors. Moreover, because it takes time for a bank to approve a short sale, one possible consequence could be foreclosure if the homeowners cannot come up with enough money before their loan balance reaches zero.
Seek a Different, More Affordable Home
If you are struggling to keep up with mortgage payments, the best thing you can do is find a new, more affordable home.
If you’ve been struggling for a while and now can’t afford your mortgage, the first thing to do is start looking for a new place to live. A lot of people wait until they’re about 30 days from being foreclosed on before they start looking for a new home – but this could be too late.
The sooner you can find a new residence, the better chance you’ll have at finding something that’s within your budget and that suits your needs. During your search, you should use a house payment calculator to ensure you will be able to afford the new home you are looking at.
