Millions of Americans have lost their homes to foreclosure in the last few years. If you're having trouble paying your mortgage, learn about the steps you can take to avoid foreclosure or to minimize your debt after it happens. Quick action is the key to success -- it can save your home and/or help protect your credit rating.
Don't Walk Away: Consider Your Options
Don't give up and let the lender foreclose on your home without considering your options. A foreclosure will hurt your credit rating and make it difficult, if not impossible, to buy another home anytime soon. In addition, if the profits from selling your home don't cover the unpaid portion of your loan, your lender might sue you for the rest.
Your best options if you're having trouble making mortgage payments include:
- negotiating with your lender
- getting government help
- filing for bankruptcy
- selling your home yourself, or
- negotiating a short sale.
These options are described in more detail below.
Beware of scam artists. People facing foreclosure are often preyed upon by others claiming they'll help. Some homeowners have unwittingly signed documents giving these scammers title to their property, thus turning themselves into renters. Don't sign anything without getting a professional opinion first.
Negotiating With Your Lender
As soon as you realize you'll have trouble paying your mortgage -- ideally, before you've missed any payments -- contact your lender. Lenders have an incentive to negotiate with home loan borrowers, if only to reduce the number of foreclosures they're dealing with. You might have to make a lot of calls to reach the right department or person, however.
Do it sooner rather than later. If you call soon, you may be able to work out a solution with your lender. But, if you've already missed three or four payments, it may be too late, and the lender may insist on foreclosure -- or have already sent your file to an outside servicing company, which may not welcome requests to deviate from its standard procedures.
Possible solutions. The lender may accept partial payments for a few months (though you may have to agree to make up the difference later), accept a late payment, or agree to redo the terms of your loan.
What to say when you contact your lender. Here's what you should ask for, in lender-language. (You'll probably need to get to the right department first -- it may have a name like "loss mitigation.")
- Forbearance. You make a reduced payment, or no payment, for an agreed-upon period of time. Usually, the lender requires you to make up the difference at a later time. The lender is most likely to agree to this if you can demonstrate that you will soon receive a bonus, tax refund, or some other extra cash.
- Loan reinstatement. You agree to make up your missed (or reduced) payments by a specific date.
- Loan modification. Your lender agrees to alter the terms of the loan so that you can better afford the payments. For example, the lender may agree to add your missed payments to your loan balance, to stretch out your loan over a longer term (which will lower your payments but result in more interest over the life of the loan), or to convert an adjustable rate to a fixed rate mortgage.
Getting Government Help
The U.S. government is working on various ways to help homeowners facing foreclosure. The two primary programs are:
The Home Affordable Modification Program. Part of the federal government's Making Home Affordable program, the Home Affordable Modification Program, or HAMP, is intended to help homeowners who have suffered a financial hardship and are in danger of losing their homes to foreclosure. Under HAMP, eligible homeowners may be able to get their loan terms modified and their monthly mortgage payments reduced.
The Home Affordable Refinance Program. Also part of the Making Home Affordable program, the Home Affordable Refinance Program, or HARP, was created to help homeowners who are current on their mortgage payments but expect to have difficulty paying their mortgages in the near future, and whose loans are owned or controlled by Freddie Mac or Fannie Mae. Under HARP, distressed borrowers may be able to refinance their mortgages into a fixed-rate, low-interest loan.