Buying a house is a significant commitment, and it’s unlikely that anyone embarks on this journey thinking they can’t afford their mortgage payments. However, life can throw unexpected financial challenges our way, and when that happens, it’s important to know what steps to take. We can’t anticipate or avoid all the curveballs life may throw at us, but we can be proactive in addressing them. In this discussion, we’ll explore what to do if you find yourself unable to meet your mortgage obligations.
In times of financial difficulty, seeking assistance is crucial. As soon as you realize you won’t be able to make your upcoming house payment, it’s advisable to reach out to your lender and explain your situation. Your lender will likely recommend consulting with a credit counseling agency approved by the Department of Housing and Urban Development (HUD). It’s essential to protect the good credit that qualified you for your mortgage in the first place. Moreover, maintaining good credit will be vital if you ever intend to apply for another home loan in the future.
Forbes suggests that one of the most viable options in such circumstances is pursuing a loan modification. This isn’t about refinancing but rather making adjustments to your existing loan to better align with your financial capabilities. Loan modification programs are specifically designed to assist homeowners facing financial hardships, particularly those at risk of missing payments or already behind and facing the threat of foreclosure.
Loan modifications come in various forms, either as permanent or temporary changes. For instance, you may have the option to extend the loan terms to lower your monthly payments. Reducing the interest rate is another avenue to achieve the same goal. Importantly, this option resembles refinancing but without the associated fees and closing costs. If you have an adjustable-rate mortgage, switching to a fixed rate could make your loan more affordable and form part of the solution.
In certain cases, late payments and fees could be added to the principal balance, and there’s even the possibility of extending the loan’s duration. In very rare instances, a lender may consider reducing the principal balance. Your lender can explore these remedies or a combination of them to help make your loan more manageable. It’s essential to contact your lender promptly if you find yourself in a challenging financial situation, as they will provide guidance on the available options.
In cases of hardship due to the coronavirus, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides relief by allowing those with federally backed mortgages to request up to a year’s forbearance. Even if your financial hardship isn’t related to the pandemic, forbearance is another program available to homeowners in need, and it’s open to anyone who requests it from their lender. Keep in mind that privately backed mortgage loans may not offer this option.
Forbearance involves an agreement with your lender to temporarily reduce payments or place the loan on hold for a specified period, typically up to one year. During this period, you will still owe the missed payments, and interest will continue to accrue. However, you can work out a plan with your lender to determine when and how to repay these amounts. If, after the forbearance period, you still require assistance, you can inquire about a loan modification.
It’s worth noting that while these options may impact your credit, they are far preferable to missing payments or facing foreclosure. Credit can be rebuilt, and choosing to work with your lender demonstrates your commitment to resolving the situation. Qualifying for these options will require meeting specific criteria, so it’s crucial to contact your lender as early as possible. Financial hardships can happen to anyone, and handling them wisely will significantly influence your financial future.
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