Many people who come to us struggle with a common issue: they are behind on their mortgage payments. So if you’re behind on your mortgage payments… what are your actual options?
This can be a really tough situation, so we want to break down your options, but, keep in mind that there is no “quick fix”.
Ask yourself, “Is this a temporary problem, or is this a systemic problem?”
Are you in a short-term situation that’s preventing you from making payments, or is this going to be a consistent issue no matter what option you take? That’s for you to decide, but for now, we’ll walk you through what you need to know.
The first thing to expect when you’re behind on payments is a letter in the mail. Your bank will alert you that you are behind and state the amount you owe. The worst thing you can do when you receive this letter is ignore it.
You see, the bank doesn’t want to foreclose on you. Not out of generosity, it just isn’t in their best interest to lose a paying mortgage holder and go through the process of foreclosure.
They’d rather work with you, so the first and most important step is to begin talking to the bank and explaining your situation right away. After you’ve spoken to them and made clear your intention to make things right and get back on track, here are your options.
If you’re very attached to your house and you can’t bear to sell it, one option is to simply rent it out.
This isn’t the ideal solution for many. If you have a family, it can be a hard sell to convince them that they should welcome a complete stranger into their home. There are a lot of situations where this might be ideal though. For instance, let’s say you live in a great school district, but you lose your job. Your children likely have friends they will miss if you move, and you want them to receive a great education, but you’re faced with few options. In that case, it might be a great idea to simply rent out a room to someone.
Some people choose to install an additional door to the outside on one of their bedrooms. Then, they close off the door that leads inside the house. This way, home owners can add an income stream in the form of rent payments, and don’t have to constantly interact with tenants. It’s not the best solution, but you remain in the home.
Another option is to borrow additional funds to catch up on the loan. You can sometimes receive these resources from HUD or a similar resource. These can cover back payments. However, be careful when doing this because all it does is increase the debt on the house. Again, you always need to ask yourself: Will your situation realistically resolve itself? Or are you simply borrowing more time?
Will you be unable to afford the house in the foreseeable future or will you be able to make up the payments and get back on track? If you get further debt on the house and you’re unsure about your ability to keep it then you are just leveraging what equity is left in the house.
If you have to sell in the near future because the payments are still too much to afford, then it will reduce the chances of being able to sell it down the road because there might not be enough equity left to even do a traditional listing. So please, only take this option if you are sure you will be regaining a substantial income in the near future.
Another option is to simply give your home back to the bank. In this vein, there are options such as a deed in lieu or foreclosure, and cash for keys programs with the bank. But really, why would you do that rather than going all the way to foreclosure? It’s key to be aware of the fact that default judgments and 1099S can actually be considered income on your IRS returns. Your lender can notify the IRS of the debt that was forgiven in a foreclosure or short sale and the owner would then owe taxes on the amount of debt forgiven because the IRS views this as income. Pretty unfair, right? But that’s the way it is.
One obvious choice when you’re behind on your payments is to simply sell the home. This may feel heartbreaking. However, sometimes it’s a safer option than trying to obtain a loan modification or other financial adjustments. Quite often, a loan modification is simply the delay of the inevitable.
A loan modification in and of itself doesn’t suddenly make you financially solvent. Unless you know for certain that your financial situation is going to improve, a loan modification may only delay the inevitable. For this reason, selling your house with a little cash in hand may be the best option if you can’t pay off the amount you owe outright.
If you’re worried or stressed from this experience, take a deep breath. Remember what’s important, your family and your health. Be calm, cool and collected, and take an honest stock of your options. Again, the worst thing you can do is ignore the problem and hope it goes away. You have to face this head on, lean right into it. Find people who can give you good advice.
If you have any questions, give us a call. We’ll help you determine what options you have available with no obligations. If you find that your best option is to sell, and especially if you need to sell quickly, call us. We’ll take good care of you every step of the way.
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