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Key takeaway
If you have financial challenges after you become a homeowner, your mortgage lender may be able to find options that can help you until your situation improves.
As you make progress toward owning a home, you may have some concerns about what to do should you have trouble making your mortgage payment. If you encounter financial trouble as a homeowner, or even foresee the possibility of it, one of your first actions should be to call your lender.
Federal agencies like the Consumer Financial Protection Bureau, nonprofit counseling agencies like the National Foundation for Credit Counseling®, and financial services industry groups have developed guidelines for mortgage lenders to help homeowners who are having trouble making their mortgage payments.
These rules give you access to tools and programs that can help you prevent foreclosure. Foreclosure means that you are unable to keep up your mortgage payments and, as a result, your mortgage lender takes possession of your property; a foreclosure stays on your credit report between seven to 10 years.
Your mortgage lender must complete several activities before proceeding with foreclosure, which vary based on how long you’ve been delinquent on your payments.
After you miss two consecutive payments, lenders must:
Before proceeding with foreclosure, lenders must wait:
Should you ever need it, you can also get expert advice from a housing counselor approved by the U.S. Department of Housing and Urban Development. There is little or no cost to you, and you can find a counselor in your area by visiting consumerfinance.gov or by calling the Homeownership Preservation Foundation’s foreclosure prevention assistance line at 888-995-HOPE (4673).
Beware of mortgage assistance scams
It’s a crime to make false promises of help or, in many cases, to ask for payment before helping a consumer. You can learn the warning signs of mortgage assistance fraud with this helpful guide from NeighborWorks America. Your best protection is to stick to contacting your lender and a federally approved housing counselor as your first step.
Mortgage assistance options
1. You may want to apply for mortgage assistance
Within 45 days of your first missed payment, your lender is required to mail you information on how to apply for mortgage assistance (sometimes called a loss mitigation application). You can contact your lender even earlier, too, and start the application process.
The application will ask for current copies of the income and financial documents you used when you first applied for your mortgage. The lender will review your application, ask you (sometimes) for missing or additional information and then begin to put together your foreclosure prevention options. But you need to act quickly with this solution. Once you’re 120 days behind on your payments, the lender can start the foreclosure process if you haven’t submitted a complete mortgage assistance application.
2. You may qualify for a loan modification
Loan modification programs help distressed borrowers avoid foreclosure by permanently changing the terms of a loan. For example, your lender could reduce your monthly payment by extending the number of years on your mortgage, cutting the interest rate, or converting a variable-interest-rate loan to a fixed interest-rate loan. Loan modifications may be coordinated through a bank lender, or, if you meet qualifications and your loan is backed by Fannie Mae or Freddie Mac, you may be able to get help from Fannie Mae or Freddie Mac Flex Modification programs or another government program.
3. You may be eligible for a forbearance plan
If you face a short-term challenge but expect to be back on your feet before long, you may be offered a forbearance plan. This means the lender will temporarily suspend or reduce the amount of your monthly payment for a set period, allowing you time to improve your financial situation.
4. You may be able to do a short sale
No one wants to leave a home they worked hard to buy, but sometimes it may be the best choice in a bad situation. In some circumstances, you may be able to leave your home without repaying the full amount you owe.
One foreclosure alternative is a short sale, which means that the home sells for less than the amount still due on the mortgage, but the lender agrees to accept that amount rather than continue to go without the payments you owe. You may also receive relocation assistance as part of this solution.
Alternatives such as this may prevent or lessen the timeframe this appears on your credit report than it would if you walk away from your home without communicating with the lender, triggering a foreclosure.
5. You may be able to refinance your home
Refinancing your home is similar to a loan modification, but it’s a solution that you initiate while you’re still current on your payments. It may be helpful to check in with your lender periodically to see if you qualify for a refinance before a situation like losing your job or other life event happens.
If you are a service member on active duty, an eligible spouse, partner, or dependent, or currently receiving SCRA benefits, please consult with your legal advisor prior to seeking a refinance of your existing mortgage loan. In some cases, a refinance may impact your eligibility for benefits under the Servicemembers Civil Relief Act or applicable state law.
6. You may be eligible for a repayment plan
If you’ve already fallen behind on your payments and are struggling because of past-due amounts and late fees, your lender may be willing to work out a plan to help you catch up. These plans generally spread your past-due amount over several months. This may be paired with other options in a mortgage assistance plan from your lender.
7. You may have other sources of help
In addition to asking the lender for help, local charities such as United Way, Salvation Army, Catholic Charities, and the Society of St. Vincent de Paul sometimes offer mortgage aid or other assistance.
If you’re in financial distress because of a state or national disaster (tornado, wildfire, hurricane), you could have additional options available through the Federal Emergency Management Agency (FEMA), through your lender, or through a disaster recovery organization like the Red Cross.
Whatever you do, keep trying to make as many payments as you can rather than just giving up after your first missed payment or your first past-due notice from your lender. The more payments you make on time and in full, the more solutions you’ll have available.
Related articles
Refinancing can help you reduce the interest you pay or cut the time it will take to pay off your loan — or both.
Be more confident in your budget by understanding what ongoing expenses you may have as a homeowner.
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