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North Coast Current

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North Coast Current

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North Coast Current

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Understanding your options when you can’t pay your mortgage

Mortgage.+%28Photo+by+Precondo+CA+via+Unsplash%29
Mortgage. (Photo by Precondo CA via Unsplash)

If financial hardship has put you at risk of missing a mortgage payment, you should familiarize yourself with the relief options available to you and be prepared to act quickly.

According to Freddie Mac, your first step should be to contact your mortgage company to determine which course of action makes the most sense for your circumstances. You may also want to brush up on the terms below to more fully understand the best path forward based on your situation:

Short-term hardship options

If you are unable to pay your mortgage, whether due to disaster or other financial hardship, the most popular and widely available mortgage assistance is “forbearance.” This is when your mortgage company allows you to make a reduced payment or pause your payment for a specified period up to 12 months. When this period ends, you will make up your payments in one of several ways. The fastest way is through “reinstatement,” which means getting current on your mortgage by paying the owed amount in one lump sum. Alternatively, you can set up a “repayment plan,” whereby you pay a little more each month on top of your mortgage. If you have overcome a short-term hardship but are unable to afford these options, a “payment deferral” may be a good solution. This reinstates the mortgage to “current status” by deferring missed payments into a non-interest bearing account that becomes due when you sell or refinance your home or pay off your mortgage. You will not be required to make monthly payments on the deferred balance until the payoff date.

Long-term hardship options

If you anticipate long-term financial struggles, you may wish to speak to your loan servicer about a “loan modification.” This written agreement will permanently change one or more terms of your original loan agreement to make it more affordable and sustainable.

If homeownership is no longer affordable for you, there are strategies to help you avoid the costly impacts of foreclosure. One of those is “selling with equity.” With this option, you can use the proceeds from selling your home to pay off any remaining mortgage debt. If the home’s value is greater than the amount you owe, you keep the excess funds. Alternatively, you can voluntarily transfer your property title to the mortgage company in exchange for a cancellation of your debt and a graceful exit from your home. This maneuver is known as a “deed-in-lieu of foreclosure.” Finally, if you’ve exhausted all other options, a “short sale” may be your best choice. This refers to selling your home for a lower amount than you owe. It also forfeits your negotiating power on the property’s sales price. With a short sale, you will not see proceeds from the sale and you must wait a certain period of time, which may be anywhere from 2 to 4 years, before qualifying for a new mortgage.

Getting help

Housing counselors are much more than a go-to resource for homebuyers. They’re also able to help current homeowners manage debt, rebuild credit and work with their loan servicers to avoid foreclosure.

If you’re facing financial hardship, reach out to a HUD-certified housing counselor at one of Freddie Mac’s Borrower Help Centers or Borrower Help Network for free assistance. HUD-certified counselors are trained, independent professionals who will listen, offer advice and help you make informed decisions about your finances and home. Visit myhome.freddiemac.com to learn more. If you’re seeking counseling services on your own, do your homework. Unfortunately, there are fraudsters who prey on distressed homeowners. Any company or individual offering to help you for a fee is a red flag.

Homeownership can be complicated, particularly when you’re facing financial hardship. But expert help, available at little or no cost, can help you navigate rough financial waters.


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