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Money Management

What You Can Do If You Can’t Afford Your Mortgage Anymore

It might be a nightmare, but if you’re facing the reality of not being able to afford your mortgage anymore, you only have a few options.

Foreclosures in the US peaked in 2010 at 600,000 and have now dropped, but mortgage refinancing and foreclosures are still quite common.

Foreclosures can cost a lot of money. According to a recent study by LendingTree, foreclosures can cause a credit score to drop 150 points or more. This can lead to some serious financial challenges and will cost you more in subprime mortgages and/or other loans with bad terms. Unfortunately there isn’t much good news for you if you’re in this situation. Still, if you’re struggling with your mortgage, you have several options to keep your home or at least mitigate the financial damage.

Foreclosures can ruin people, but many people lose their homes to a foreclosure while they’re still in denial. Ignoring a foreclosure will do you no good, and the longer you wait the more limited your options will become. This is why speed is now of great importance, so if you’re running into any trouble paying your mortgage, you should contact your lender sooner rather than later and see if you can work something out. The US Consumer Financial Protection Bureau suggests that you be prepared to discuss the reasons you can’t make your payments and discuss any viable plans. It’s often in a lender’s interest to see to it that you keep your home in the end, especially when real estate markets are saturated with foreclosed properties.

Your first major option apart from making a deal with your lender is to refinance your mortgage. You can extend the amortization of your loan, making the mortgage take longer to pay off, but making payments much smaller. Keep in mind that this option usually comes with a serious fee, but it can be better than losing your home. This is why it’s often better to just apply for a loan modification with your lender.

If you’re not too worried about parting with your home, one of the other viable options you have is selling it. As long as you get started well enough in advance, you can usually sell your home, especially when the home’s value exceeds the mortgage’s. There are two main options for selling your home when you’re struggling to afford the mortgage and your mortgage exceeds the current value of your property. The first is a short sale, which is when a bank allows you to sell your home for less than you owe on the mortgage. Of course getting less than what they’re owed is never in a bank’s interest, so it’s a hit-or-miss option. In other cases a lender can allow a deed in lieu of foreclosure. This means the lender will allow you to hand your deed over to the bank instead of dealing with a foreclosure. In this case the lender can effectively sell your home to cover their losses.

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