Nobody likes being behind on their mortgage. But if that’s the case, it may not be too late to get ahead of the problem.
I’m not a big fan of corporate buzzwords. You know how it goes, someone at a meeting says that we “need to be proactive if we’re going to raise the bar and get some value-add so this project is on the fast track.” The guy is always making those air quotes with his fingers when he says “proactive,” too.
Forget that. In business, like in life, the simplest answer is to get ahead of a problem, and you don’t need a lame corporate buzzword dictionary to figure that out.
Getting out in front is particularly a good option for the rising number of Americans behind on their mortgage payments. According to the Mortgage Banker’s Association, a record 10% of U.S. homeowners are either behind on their mortgage payments or actually in foreclosure. If you’re in that group, my heart goes out to you. But know that you have some options to minimize the damage and maybe even keep your house – if you act now.
Let’s go over your best options.
What’s your timeframe? You have time, probably more than you think. But job one is to find out exactly how much time you have before your lender forecloses. Know the timeline. At the one- and two-month marks, you’ll be hearing from your bank – and they won’t be happy. To mitigate that, get ahead of the curve and call them before you’re late. It might buy you some time later (see tip #2 below). At the three-month mark, you’ll get a letter warning you of foreclosure. After that, you’ll probably have another 60 to t90 days before your home is actually foreclosed.
Read your mortgage. Read your mortgage again. They’ll tell you exactly what your bank can do if you fall behind on your home loan. It’s a grind, but in a crisis, information is king.
Confront the issue. Once you hear from your lender that you’re behind on payments, call them immediately – even better, call them before you’re late -- and ask to speak to a loan workout specialist. Just about every bank and lender has one nowadays. They’ll send you a loan workout package to find out if you’re eligible for a deal that can buy you time until you get your financial life back on track. If your setback is temporary, i.e., you lost your job but are getting another one, your bank likely will want to work things out. Like you, your lender doesn’t want to foreclose. For help, this site has a step-by-step guide to loan workout programs.
Keep making payments. Even if you can’t afford to make the complete monthly mortgage payment, go ahead and pay what you can. It shows your lender that you’re committed to your home (and your mortgage deal). Ideally, give them a heads-up that you’ll only be paying a partial amount. A phone call to a customer service rep should do the trick.
Go to a (legitimate) pro. There’s no shortage of non-profits and home mortgage counselors out there, some of them helpful and some of them shadier than a Chicago alderman. Start with one of the good guys, the Fair Credit Foundation.
Sell your house short. Nobody wants to sell a home into a lousy market, especially if they owe more than it’s worth. But why not cut your losses and try to workout a “short sale” deal with your lender? Increasingly, banks are open to a short sale where you sell your home for whatever money you can get and the lender okay’s the deal. In some instances, the difference is forgiven. Be prepared to write a hardship letter explaining why you can’t make your loan payments, and be patient: the entire process can take months. A bonus: the extra time can help you catch up financially.
HOPE from FHA. This October, the U.S. Government took a stab at helping distressed homeowners that enables borrowers of FHA loans to refinance into FHA-insured mortgages that they can afford. The relief program, called The Hope For Homeowners Act, helps homeowners who purchased their homes on or before January 1, 2008, don’t own a second home, and who can’t afford their current loan.
In the end, you have leverage. This is, after all, a once in a lifetime opportunity to cut a better deal with your lender. Why? Because the banks are so desperate not to book bad loans. Chances are they want to work with you so neither you nor your lender has to deal with a foreclosure. So get up off the mat, get out in front, and get a plan. Your home may depend on it.