6 Options If You Cannot Afford Your Mortgage Anymore

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Realizing that you cannot afford your mortgage anymore is a stressful event. But, as long as you keep your cool and start working on solutions right away, it’s possible to solve this problem. There are a few options when it comes to getting through this challenging time and improving your situation. But, for now, your number one goal should be to find ways to avoid foreclosure. Always remember that there is no reason to be afraid of your lender. Most lenders consider foreclosure to be the last resort option. It’s an expensive, time-consuming, and overall inconvenient process for them. They want you to get your payments sorted just as much as you. Let’s go through some of the best things you could do to fix your problem.

  1. Get in touch with a housing counselor

Before doing anything else, your first step should be to get in touch with a professional housing counselor. They will be able to help you decide which path forward is the best option for you. In most cases, this consultation will be free, and it’s best if you come preloaded with all your questions and ideas. If you don’t know where to find a housing counselor, there are tools available online to assist you.

2. Refinancing

Refinancing is a way for you to make your monthly mortgage costs lower. This way, your payments will be more affordable. To make this work, you have two main options. You can qualify for an interest rate lower than your current one. Alternatively, you could also refinance into a longer-term loan. This allows you to spread out your payments over a more extended period which, in turn, reduces your monthly payment cost. The biggest downside to this option is that the amount you have to pay in interest will increase in the long term. But it at least gives you the time you need to get back on your feet financially.

Owner financing

You can also go for owner financing other than the traditional refinancing option. This is another excellent option if you cannot afford your mortgage anymore since it allows you to sell your home even if you still have a mortgage. This can be done in one of three main ways: 

  • The buyer can pay a down payment; 
  • The buyer can pay the mortgage through you; 
  • When the buyer pays the price of the home, the mortgage is transferred to them – keep in mind that this is only available in certain states. 

After selling, you can spend money on buying a more affordable home.

3. Forbearance options

Another thing you can do is ask your lender about forbearance options. The result will vary from lender to lender, but most commonly, it means that you’ll be able to pause your payments for a few months or at least pay a reduced amount. In most cases, there won’t be any additional feed or penalties for this. Another positive aspect of this option is that you won’t incur additional interest costs. 

The biggest downside to this is that, at some point, you will have to repay the payments you missed. Depending on your lender’s policy, you’ll have to pay it back in one of three ways: 

  • You and the lender will agree on a repayment plan; 
  • You’ll have to pay it back all at once; 
  • You’ll move the missed monthly payments to the end of your payment period.
  1. Ask about a loan modification

While this is pretty rare, modifying your loan can sometimes be an option. A loan modification is very dependent on your lender. This is a situation where you and your mortgage lender make an agreement to change the terms of your contract to make your loan more affordable. This can mean a couple of things. You may be able to extend your loan term or reduce your interest rate. In some cases, albeit very rare ones, you might even be able to reduce your loan balance. 

The biggest issue here is that it’s a gamble. Lenders are not obligated to allow you to modify your loan. It just depends on how motivated your lender is to avoid foreclosure and help you if you cannot afford your mortgage anymore.

4. Selling the home

Selling your home is an excellent option if your home’s value is larger than what you owe. Considering the current state of real estate markets in the US, a home in good condition will likely sell relatively quickly. Since this process should be done as fast as possible, experts from statetostatemove.com recommend finding your next home and moving your things out prior to listing. This way, you’ll be able to close the deal a lot faster.

If you go with this route, you should keep in mind that every mortgage payment you miss during the selling process (no matter how fast you get it over with) will negatively impact your credit score. If possible, you should keep up with your monthly payments while selling your home.

5. Deed in lieu of foreclosure

The last thing you can do if you cannot afford your mortgage anymore that we will be covering is a deed in place of foreclosure. If you choose this option, you’ll agree to leave the home and give the keys to your lender. In exchange, your lender would relieve you of your mortgage obligations. In the best-case scenario (usually if your home is worth more than what you owe), you might be able to agree on a “cash for keys” arrangement. This would mean that the lender would also give you some money which you can use to buy a new place to live. However, you should be smart about that. In this case, your best bet is to go for a cheaper home. You can do this either by downsizing or buying a fixer-upper.

Final thoughts

You should use this experience as a learning opportunity. After you get back on your feet, you should do what you can to ensure you never end up in this kind of situation again. There are two main precautions you can take to achieve this. Firstly, you should have a healthy home security fund (usually six months’ worth of payments). Secondly, you should keep your credit score as good as you can. What is vital in a situation where you cannot afford your mortgage anymore is not to panic. Make sure you call your mortgage lender immediately and remember to be proactive. The problem won’t go away on its own if you don’t try your best to solve it.

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