Homeownership might be the dream of many people, but it can quickly turn into a nightmare. The loss of a job, a medical emergency or the death of a family member often makes it difficult to keep up with the mortgage payments. If you can’t make the payments, you run the risk of losing your home. Fortunately, those who are struggling with their mortgage do have some options. You simply have to find the method that works best for you and your family.
Talk to the bank about the different ways that you can modify your loan. For instance, if you are able to refinance only the remaining balance, it could significantly lower your monthly payments, especially if it lowers your interest rates at the same time. This allows you to stay in your home while making changes. Unfortunately, it can also significantly lengthen the terms of your loan. For example, if you’ve already been paying on your mortgage for 20 years, refinancing for another 30 years means that you’ll ultimately spend 50 years paying off your mortgage.
Surrendering Deed in Lieu of Foreclosure
Foreclosure is a lengthy legal process that puts a big dent in your credit report. If you don’t see that there’s a way that you can get out of your financial situation, you might choose to simply surrender the deed to your home to the bank. There’s a chance that this can negatively impact your credit score, since the bank is likely to lose money on the sale, but this option might have a less negative impact than if the bank has to start foreclosure procedures. Note that the bank may require you to pay for the cost of a title search, which can be a few hundred dollars.
Negotiating Payment with the Lender
If you had a temporary setback that forced you to miss a few payments, it can take a bit of work to catch up. Fortunately, many lenders want to avoid foreclosure just as much as you do and are willing to work with you to help you catch up. In this case, you’ll restructure the mortgage with the lender. For example, they may allow you to pay your current mortgage payments while paying some extra toward the bank payment. It might take you a year or more to make up for the payments you missed, but you’ll get to keep your home and things will eventually return to normal.
Fluctuations in the housing market sometimes mean that a home becomes worth much less than the homeowner originally paid for it. In some cases, the home is worth less significantly less than the money still owed on the mortgage. If this describes your situation, you may be eligible for a short sale negotiation. In this situation, the bank allows you to sell the home for its current market value, knowing that it is less than the amount you owe. They’ll agree to take less money than what you owe and will release any liens against your property. This approach can make it difficult for you to move into a new home, but it’s a valid solution when you find few alternatives left. It may be a good choice when you have opportunities available in another city, but are having a hard time moving there because you’re stuck in a home you can’t afford to sell.
Filing for Bankruptcy
Bankruptcy is a drastic step, but you don’t necessarily have to give up your home if you file for bankruptcy. It can help you restructure or discharge some of your debts so that things become more affordable for you. While many people file chapter 7 or 13 bankruptcy, these aren’t the only choices available. The smartest thing to do is to discuss all of the options available to you with a lawyer who fully understands the process.
The downside to filing for bankruptcy is that it has an extremely negative effect on your credit report. Bankruptcies remain on your report for up to 10 years and will prevent creditors from offering you more credit. Some types of bankruptcy filings will require you to attend financial training, which can help you take control of your finances and build your credit score back up.