Before making what’s often the biggest financial commitment of a lifetime, it’s important to ensure you’ll be able to make those monthly mortgage payments over the long term. The amount you can afford can be determined by using a house payment calculator, but it isn’t a crystal ball that will tell you whether your company will shut down or a medical condition will render you unable to work.
After the pandemic hit causing shutdowns in many industries, households across the country and well beyond struggled to make rent or house payments. The Mortgage Bankers Association’s Research Institute for Housing America revealed that over six million households were unable to do so in September 2020 due to the economic consequences related to COVID-19.
Life throws inevitable curveballs, and sometimes they can really hit you where it hurts, in your wallet. If that happens to you and you can’t afford to make your mortgage payments, you’ll want to know what your options are.
Get Advice From Your Lender
Don’t ignore the situation hoping it will go away. Ideally, you should contact your lender before you’ve missed a payment and are sure you won’t be able to make the next one. The earlier you make that call telling your lender that you’re concerned due to XYZ circumstances, the better.
For your lender to provide options that may be available to you, such as a program that can help you avoid foreclosure, you’ll need to be prepared to discuss what caused your situation to change. Have an estimate of your current expenses as well as your current and/or future income if you expect that to change ready too.
Contact a HUD-approved Housing Counselor
The Department of Housing and Urban Development (HUD) can put you in touch with a housing counselor. They’ll determine whether you qualify for any programs or other types of assistance in addition to guiding you through the process of working with your lender.
HUD can also help you get free or very low-cost assistance for better budgeting as well as handling credit card debt and other financial issues that might be making it difficult to pay your mortgage.
Refinancing Your Mortgage
If you’re being proactive but addressing the situation before you’ve lost your job, missed a mortgage payment, and/or your credit score has taken a dive, you might want to consider refinancing your mortgage at a lower rate. You’ll need to go through the same steps that you did when applying for your current home loan, including having your income, debt, and credit all evaluated.
Keep in mind that while your monthly payment will be lower, you’ll also have to pay for application, origination, and appraisal fees, as well as closing costs.
Filing Chapter 13 Bankruptcy
While filing Chapter 7 bankruptcy eliminates your personal liability to pay your mortgage, the lender can still foreclose. But Chapter 13 can be very useful for saving your home from foreclosure and for reorganizing debts. Going into bankruptcy earlier rather than later has allowed many homeowners to keep their properties.
Once you file, an automatic stay will be put in place, prohibiting creditors from engaging in collection activities and preventing your lender from foreclosing without obtaining the court’s permission first. That means to keep your house you will have to make your mortgage payments as they come due, either directly to your lender or to a bankruptcy trustee as part of the repayment plan.