Whether it’s unexpected unemployment, a divorce agreement that isn’t progressing, a sudden health issue, or another unforeseen event– anyone would worry about paying the larger bills in our lives when times get hard. We’ve put together a resource to help those looking for what to do if you can’t pay your mortgage, along with tips to help you save your home, salvage your finances, and sell your house as fast as possible if time is of the essence.
Paying Your Mortgage During Hard Times
You can work with mortgage brokers to find a way to keep your home. Here are some of your options:
Understand Your Mortgage Details
If you can’t make your house payment because of job loss, illness or another unexpected event, the worst thing you can do is to pretend nothing is wrong. It helps to understand how your mortgage works and what to expect from it.
- Hybrid Adjustable Rate Mortgages
- Fixed Rate Mortgages
Fixed rate mortgages have interest rates that stay the same. The only changes would be for the taxes and insurance if you have an escrow account.
Hybrid adjustable rate mortgages
These mortgages have fixed payments for a set number of years, and then they turn into adjustable loans. In a 3/1 hybrid mortgage, for example, the interest rate stays the same for three years, and then changes each year after that.
ARMS start out with adjustable rates. This means your payments will change every year.
If you have an ARM or hybrid ARM, your payments will go up. If you need a break on mortgage payments, you may be able to refinance at a fixed rate.
Ask if your adjustable rate mortgage has a penalty for converting to a fixed rate. If so, weigh the cost of the penalty against the length of time you plan to stay in the house.
What to Do when You Can’t Pay Your Mortgage
If you have trouble paying your mortgage, contact the lender to talk about your options. The earlier you get help, the more choices you’ll have.
Finding the right solution takes time and patience. You may be eligible for loan modifications under Making Home Affordable Modification Program (HAMP) if you meet these requirements:
- use the home as your primary residence
- owe less than $729,750 on the first mortgage
- got the loan before January 1, 2009
- your payment (including taxes and fees) is more than 31 percent of your gross income
- you have a financial hardship and can’t afford your mortgage
If you qualify for a HAMP loan, you’ll need to provide documents like these:
- pay stubs
- latest income tax return
- information about savings and assets
- monthly mortgage statement
- information about second mortgage or home equity line of credit
- credit card balances and payments
- other debts, such as car or school loans
- an official form with the reason for financial hardship
If you can’t refinance because the value of your home has decreased, ask about the Home Affordable Refinance Program (HARP) or the HOPE for Homeowners (H4H) program. The U.S. Department of Housing and Urban Development has more information.
How to Avoid Foreclosure
The Federal Trade Commission recommends these ways to avoid foreclosure: reinstatement, repayment, forbearance, loan modification, selling and bankruptcy.
To reinstate a delinquent mortgage, talk to the lender about setting a date to pay all back payments and fees. This works best for short-term problems.
You can also ask the lender to let you repay the amount you owe by a certain date. This works best if you don’t have a lot of overdue payments.
You can ask for forbearance, which will reduce or suspend your payments for an arranged time. At the end, you can make your payments again with the addition of a lump sum or additional amount added to payments.
You can also ask your lender to make permanent changes to the terms of your contract. This could include the interest rate, length of the loan or addition of payments to the balance of the loan. You can find more information at the Internal Revenue Service.
Before you request any of these services, be prepared to show evidence of your good faith and willingness to repay the loan. If these methods don’t work, you may need to sell your home to pay off the entire mortgage and avoid bankruptcy.
Claiming bankruptcy is usually a last resort because it stays on your credit record for 10 years. If you need a fresh start, you can find more information here. If you have a federally-backed loan, you can contact the Veterans Administration (VA) or the Federal Housing Administration (FHA).
Be prepared to answer questions about the reason for delinquency, how you plan to solve the problem, and what kind of outcome you’d like to see. You’ll need to know how much equity you have in your home and the market value after the first mortgage and any home equity loans are deducted.
During the process, document everything that happens, including the time of day and date, type of contact, name of representative, and outcome. Provide written documentation for spoken requests, meet all deadlines, and stay in your home to avoid being disqualified for assistance.
For loan assistance and counseling, call the local office of the U.S. Department of Housing and Urban Development or the housing authority in your local jurisdiction to ask for a trustworthy agency near you. You can also contact the
Homeownership Preservation Foundation (HPF), a nonprofit that partners with other organizations, at 888-995-HOPE.
Sell to Someone Who Buys Distressed Homes
If none of the tactics designed to manage your mortgage works, you may be able to sell to someone who buys distressed homes and save further damage to your wallet and credit records. Selling a distressed home differs from selling one in good condition.
Undergoing foreclosure, dealing with fire damage, knowing there are extensive repairs, violations, or experiencing long vacancies may leave a property with a stigma that makes it hard to market. Selling to someone who buys what are considered distressed homes may be the best option.
These three factors can make it difficult to sell your home traditionally:
- Pricing it incorrectly
- Delaying the sale
- Signing a contract with an unqualified buyer
If the house is in good condition and has no foreclosure or other problems, listing it on the open real estate market will bring the highest price, but selling can take a long time. Sellers of distressed homes usually need to sell their homes quickly– however, listing your home for sale at the right price for your neighborhood and surrounding area is critical.
It may be difficult to know what to charge for a distressed home. However, the longer the home sits vacant, the greater the odds of it decreasing in value.
If you default on your mortgage, you want to sell it before the bank starts the foreclosure process, while you can still take advantage of alternatives like short sales, fast cash sales, and payment negotiations. The faster it sells, the less risk you’ll face from unpaid taxes.
Renting to problem tenants or leaving a vacant home to squatters may incur expensive repairs, and damage gets worse with time. Absentee owners face a greater chance of lawsuits and other legal liabilities. Delaying a sale of a property does not always make sense when you run the numbers.
When you get ready to sell, signing a contract with an unqualified buyer can cost valuable time and money. Choosing a buyer who understands distressed homes, what they’re worth, and how to speed up the process can make the sale easier and more profitable.
Do Your Research
Although many companies want to help, some unscrupulous lenders and buyers took advantage of people in distress during the previous recession. You need to do your homework before you proceed with refinancing, delaying payments, or selling your home.
Established, reputable companies will have a website. Although that doesn’t make them legitimate, it can give you information, such as phone numbers, that you can trace to check them out.
How does the company present itself on its signs? Watch out for phone numbers without a company name or hastily made posters in parking lots and other public places, and don’t assume flyers in the mail are legitimate without checking them out.
If you find a name, do some research. A shady company may use different names to hide their identity, or they may use a name similar to one with a good reputation to fool you.
Look for online reviews– especially those from the Better Business Bureau. It’s possible for shysters to post fake reviews, so look at different sites for reviews that describe real experiences with the company.
Cash buyers may process their own sales and pay for titles and insurance. Read the fine print, and stay away from cash buyers who ask for money upfront from the seller.
What to Do If You Can’t pay Your Mortgage After These Steps
Every distressed owner is unique. If you can’t get a break on mortgage payments or sell to a cash buyer, consider these other options:
Think about the timing of the sale, especially in a buyer’s market. If you can afford to hold on a little longer, put off the sale until there are fewer homes on the market or more demand.
Rent your home, and use the income to pay off the loan. If you live in a destination for business travelers or tourists, short-term rentals like Airbnb or VRBO might be a good choice.
If you owe more that your home is worth, think about a short sale. Not all lenders and homeowners are eligible, and it can lower your credit rating and make it harder to get another home loan.
Sometimes buyers want to buy a home but are not prepared to buy. Consider offering them a lease option with an opportunity to buy the house at a later date.
Finally, you can lower the price of your house to attract investors and bargain hunters. Besides creating new interest in the listing, rock-bottom pricing can also encourage competition among buyers looking for a good deal.
What to Do If You Can’t Pay Your Mortgage During the Coronavirus Pandemic
Under new legislation, federal regulators from the U.S. Department of Housing and Urban Development are working with the Fannie Mae and Freddie Mac mortgage companies who guarantee federal loans to make payments more flexible for homeowners who have financial problems. This includes only half of the home loans in the United States, but other companies may offer similar policies.
If you have had a loss of income because of the coronavirus, you may qualify for reduced or suspended payments for up to one year. All you have to do to start the process is call your lender.
DEFINITELY BE PREPARED FOR A LONGER THAN USUAL WAIT TIME ON THE PHONE
The plan doesn’t wipe out the loan or make payments for you, but it will give you a chance to work out a plan to keep your home while you recover financially. The lender may extend your loan or come up with another solution, depending on your unique needs.
Fannie Mae and Freddie Mac are asking credit bureaus not to report homeowners with late or missed payments while details are being worked out. If you need help, start the process immediately, and don’t stop making payments without documenting talking to the lender beforehand.
They are also asking lenders to stop foreclosures already under way. Federal regulators think this will help the economy, but they also want to help homeowners who are going through a hard time because of the pandemic.
What if I Have Tenants?
Although these rules don’t help renters, many cities are halting evictions for people who have had a loss of income during the crisis. Mortgage companies hope the federal government will also act to help renters.
Wells Fargo and JPMorgan were the first private mortgage lenders to offer to help borrowers. As of April 1st, 2020, these banks have already stepped forward, and others will likely join the list:
- Ally Bank
- Bank of America
- Capital One
- Citizens Bank
- Fifth Third Bank
- Goldman Sachs
- Key Bank
- TD Bank
- U.S. Bank
- Wells Fargo
Although the future of the real estate market is uncertain, dramatic changes are taking place. Socially distancing has put in-person showings on pause, and sellers and agents are looking for new ways to show homes to buyers.
On March 30, CNBC reported the number of 3D home tours on Zillow, a listing site, had almost doubled during the first weeks of the outbreak. Before the crisis, 3D homes were saved 50 percent more often by users and sold 10 percent more quickly.
Redfin, a Seattle-based brokerage firm, reported five times as many requests for agent-led video tours in recent weeks. The use of video-chat tours also increased.
At Rently, a software company that makes digital lock boxes to enable solo home tours, requests are surging. Visitors can register data and credit cards online and use smartphones and IDs for a one-time access code to tour homes.
In a study of real estate markets around the world during past pandemics, Zillow found the number of sales fell, but prices didn’t substantially go down. Despite varying opinions from experts, the effect of the COVID-19 pandemic is still unknown.
What the Experts Say…
Lawrence Yun, chief economist for the National Association of Realtors, said in a recent podcast, “It’s going to pass. This short-term virus negative impact will pass.”
Referring to recent changes by the federal government to protect homeowners, HUD secretary Ben Carson said, “The health and safety of the American people is of utmost importance to the Department, and the halting of all foreclosure actionsand evictions for the next 60 days will provide homeowners with some peace of mind during these trying times.”
Federal Chairman Jerome Powell said of recent cuts in interest rates, “We’ve come to the view now that it is time to act in support of the economy,” he said. “I do know that the U.S. economy is strong and we will get to the other side of this; I fully expect that we will return to solid growth and a solid labor market as well.”
National Emergencies and Interest Rates
The Federal Reserve announced an emergency interest rate cut on March 3, and other cuts have followed. The reduction is intended to keep the price of loans down for banks, pass savings on to their customers, and make sure borrowers have the credit they need during the pandemic.
The Final Word
If you get behind on your mortgage payment, the most important thing to remember is that help is available. Whether you have a federal loan or one from a private lending company, don’t give up until you get the help you need.
If you CAN pay your mortgage in the next 30 days, then pay your mortgage. Your current mortgage provider will most likely have assistance information available for you on their website. Don’t wait to contact them until you’re already behind.
If there are extenuating circumstances where you can’t continue paying your mortgage as it stands, then there are numerous options out there for you to make a move to improving your situation.
Contact Honey Home Buyers today if you decide you’re ready to sell your property fast for cash.