With interest rates adjusting, property values dropping, and our economy getting worse every day, many Americans are in fear of foreclosure or missing their mortgage payments. Obviously, making a late payment or missing a payment is never a good thing. When you are over 30 days late, it will reflect a late payment on your credit report and in most cases, once you’ve missed three payments, you’ll no longer be qualified for a mortgage. Obviously, you should make your payments if possible, but what should you do if you can no longer afford your monthly payment?
Many people take out second loans or use credit cards to make payments, which is okay for a short term solution, but eventually they’ll run out of money. Unless there is a reason that the mortgage will become more affordable at some point in the near future, taking out more loans should not be considered a solution. The same thing goes for borrowing from friends or family. There is no reason to borrow money, unless you have a long term plan to get back on track. Fully extending your credit and borrowing from friends and family will only make your situation worse.
The first step to take, when you think you may miss a payment, is to evaluate your situation. You will want to speak with a mortgage/financial/foreclosure specialist to help you with this process. You need to know if your current mortgage is affordable in the long run. Of course, there are many things you can do to make it more affordable, such as getting a second job, renting out a portion of the home, or finding a job that pays more. But none of these options are available, you’ll need to find out if its possible to establish a budget to make the payment easier on a monthly basis.
In some cases, there may be a future change that will increase your income, such as a promotion or raise at work, or a settlement payment or other payment will begin to arrive at some fixed point in the future. In these cases, borrowing money or drawing from a retirement account may not be a bad idea. These are all questions you should review with a professional. But keep this in mind: winning the lottery or planning a successful trip to the casino should not be considered future sources of income. Another mistake I see quite often is homeowners expecting to find a better paying job. I’ve even seen people quit their job with expectation of finding a better paying job. Don’t be an idiot and quit your job before you’ve found another job, especially if you’re behind on payments! Finding a job is not always easy and you can’t count on that for future income. A second job would be a much better option, until you can find something better.
Once you’ve established that your existing mortgage is no longer affordable and it will not become affordable at some point in the future, there are really only three options: sell the home, refinance the home, or modify the existing terms of the mortgage. All three of these options can help get you into a more affordable monthly housing payment. Just keep in mind, with todays market, it could take a long time to sell your home, and if you’ve already missed payments, you’ll probably get turned down for a refinance. A loan modification is probably your best bet if you find yourself behind on payments and facing foreclosure.