If you are behind on your mortgage payments, know that you aren’t alone. Five percent of Americans are behind on their mortgage payments. The key is to know what to do in order to make sense of the situation. Ignoring it and hoping it will resolve itself won’t work. Instead, take the following steps.
Contact Your Lender
Always let your lender know what’s going on. Yes, it’s embarrassing, but trust us, they hear the stories every day. They would much rather hear from you than have you ignore them. If you want your lender to work with you, it’s important that you contact them from the start. If you aren’t comfortable contacting your mortgage lender yourself, you can go through a housing counselor at the National Foundation for Credit Counseling for guidance.
When you contact your lender, they may offer you one of the following options:
Many lenders can offer a modification of your loan’s current terms. You keep the same loan; the lender just modifies it rather than refinances your loan. With a modification, lenders can decrease your interest rate, extend your term, or even knock down your principal balance. Modifications are a good solution for borrowers that can get back to making payments but may need some help in catching up.
If you can’t make any payments right now, but your situation is temporary, a forbearance may be a good option. This stops your mortgage payments temporarily. Lenders may allow this option for a few months on the premise that you’ll pick up your normal payments again as well as work out a plan to catch up on the past due payments. You may choose from making a lump sum payment on the back payments or paying a portion of the amount monthly.
Loan Repayment Plan
If you’re able to get back on track with your payments, but need help with the back pay, a lender may be able to give you a loan prepayment plan. This plan helps you catch up on your past due amount. They typically divide the amount outstanding over a period of a few months, adding the amount to your regular payment.
If you owe more than the home is worth, you are upside down on your home. Even when you catch up on your payments, you probably won’t be able to refinance it. Your lender may be able to give you a principal reduction. This means the lender knocks down your principal balance to better reflect the home’s current value. This helps lower your payment, which can make it more affordable for you.
Why Lenders Will Work With You
It may sound odd that lenders have so many programs available to help borrowers that are three months behind, but they don’t want to foreclose on your home. Placing a home in foreclosure is very expensive and labor-intensive for banks. That’s not what they are in business to do. In other words, they don’t want your home. They want you to be able to make your payments.
The plans above give you many ways to get current on your payments. Some of the plans, such as the modification, require you to continue to make your payments on time. You may need to implement one of the other plans first and then ask for a modification once you are caught up. The key is to catch up as fast as you can. Even if you have to put a payment plan in place that takes you several months or longer to pay back the past due amount, if you get back on track making your payments, you’ll avoid foreclosure.
It’s important that you do what you can to avoid foreclosure. Your credit score could lose several hundred points and it could be at least three years before you could get a mortgage again. Renting, getting credit cards, and car loans could be next to impossible moving forward at least for the next few years. Instead, work with your lender as best you can to get yourself caught up. There are many options available today that help make your payment more affordable, allowing you to stay in your home.