Drowning in Debt! I Can’t Pay My Mortgage — What Are My Options?
Are you drowning in debt and don’t know how to swim?
Many people struggle to make home payments each month. Eventually, they ask a simple question: “I can’t pay my mortgage, what are my options?”
While the question is simple, the answer gets pretty complex. That’s why we put together a definitive guide to all of your different options when you can’t pay your mortgage.
The Problems of Missing a Payment
When people get desperate, they start to wonder just how bad things could really be. Like, what’s the worst that could happen if you cannot pay your mortgage?
At the bare minimum, you can lose your home. This is already terrible because it is like flushing all of your previous payments away and you have nothing left to show for it.
On top of that, a foreclosure may seriously hurt your credit rating. This can affect many future financial decisions and may even keep you from finding a good place to rent.
In some extreme cases, bad credit from foreclosure may keep you from getting hired for a good job. This creates the ultimate “Catch-22”. You lose your home because you don’t have enough money and then you lose your ability to reliably make money.
That’s why it’s important to exercise all of the following options when you cannot pay your mortgage. In short, anything is better than the fallout of losing your home!
Talk to the Bank
How do you deal with most of the major problems in your life? Most of us try to talk things out. And that strategy can actually work pretty well when it comes to your mortgage lender.
Give the bank a call and keep an open mind. Try to be completely honest with them. Their first question is going to be why you are unable to pay your mortgage at this time.
Believe it or not, the bank is usually incentivized to help you out. It’s better to help a reliable client who suffered a temporary setback than to foreclose the house and simply hope another buyer comes along.
The bank may offer terms such as delayed or deferred payments. While you are not obligated to accept their terms, this is typically the simplest way to deal with an inability to make your payment.
Changing the Loan
When you talk to the lender and ask for options, they may present a number of very short-term options. If you need something beyond that, then you may need to modify your existing loan.
So long as you can demonstrate that you are facing significant financial hardship and meet the criteria below, you can modify many aspects of the loan. This ranges from the monthly payment to the rate and length of the loan.
Unfortunately, not everyone qualifies for this solution. You may only be able to apply if your loan began before 2009. You must also not owe more than $729,750 on your home. The good news is that it’s easy to determine if you qualify.
Refinancing Your Home
Our previous loan modification suggestion had strict qualification requirements. Another option that is open to most homeowners is to refinance the home.
At the most basic level, this includes changing the loan term. Someone who previously had 10 years of payments left may be able to amortize that into 20 or even 30 years in order to make their monthly payment more affordable.
Of course, there are a few downsides to this solution. The most obvious is that you will end up paying much more interest over time than you were originally planning to spend.
You may also have to pay a fee to the lender in order to break your contract. For this reason, refinancing does not work for everyone because it ultimately costs more money.
Make a Sale
So far, we have focused on what to do in order to keep your home. However, if the other short-term solutions are not feasible, then it’s time to focus on long-term solutions that offer better financial stability.
For example, you can always sell your home. This knocks out two birds with one stone because it eliminates the source of your debt while providing money upfront to help you downsize your lifestyle.
If selling sounds like the best solution, you may explore the “short sale” option. This term refers to the act of selling a home for less than what it is worth, but you must get your lender’s blessing to do so.
Some lenders may not approve because they are worried about getting less than they are owed. And some sellers do not like this strategy because if the lender reports this debt reduction, it can have a damaging effect on the seller’s credit rating.
In extreme cases, you can sign your deed over to the bank. This allows the bank to handle the stress of selling the house while allowing the seller to avoid foreclosure.
Bankruptcy: The Nuclear Option
Most homeowners will move heaven and earth to avoid declaring bankruptcy. But when you do it right, bankruptcy may actually be the best move for certain people.
First, you should know there are different kinds of bankruptcy. Chapter 7 bankruptcy prevents an individual from having to pay back their debts while Chapter 13 bankruptcy requires certain debts to be repaid.
Why would anyone opt for Chapter 13 when Chapter 7 is available? Simple — Chapter 13 allows a homeowner to potentially keep their house.
Keep in mind that bankruptcy of any stripe severely damages your credit. Even if you successfully keep your home, you will have difficulty borrowing money for the better part of a decade.
‘I Can’t Pay My Mortgage, What Are My Options?’ The Final Verdict
Now you know the answer to “I can’t pay my mortgage, what are my options?” However, do you know who can make this entire process easier and less stressful?
We specialize in buying homes no matter their appearance or condition. To see how we can help you sell your home and avoid foreclosure, just contact us today!