Help for Homeowners Facing the Loss of Their Home
When times get tough for homeowners, whether you are facing layoffs or the threat of unemployment, it may cause you to worry about being able to make your mortgage payment. Since, most often, your home is your family’s most important possession it is important that you can look to the best advice available from all sources. We have compiled basic steps and resources from HUD/FHA, the Department of Veterans Affairs (VA), the Department of Labor, and the mortgage industry itself. In this complete guide you will learn the first steps when facing a money crunch, how to create a workable budget, how to make extra money when times are tough, mortgage loan workout solutions, predatory lending schemes, frequently asked questions, a full resource section, and more!
This guide can give you the support and information you are looking for.
The First Steps When Facing a Money Crunch
There are financial impacts that can come from sources beyond your control. It isn’t always your fault that you find yourself in a position that makes it difficult to pay your bills. These situations could include:
- The loss of your job
- Cuts in work hours or overtime
- Retirement (forced or voluntary)
- Illness, injury, or death of a family member
- An injury or illness of your own
- Divorce or separation
- Legal or tax problems
If you find yourself in one of these, or one of many other, situations in which you’re in a financial bind it is time to look very closely at what you earn and what you owe. You should consider creating a budget that eliminates unnecessary spending and clearly identifies how much extra, or how short, you are each month. If you create a budget and realize that, even after cutting down on expenses, you still fail to meet your obligations then you should take action to help prevent the loss of your family’s home. This page was created to help you find advice, information, and resources that will help you protect your home for years to come.
Contact Your Lender ASAP!
You may avoid calling your lender when you realize you’ve run into money troubles because you are embarrassed to discuss money problems with others. This is very common. Or you may believe that if lenders know you are in trouble they will rush to start the collection process or put you in foreclosure.
It is important that you know that most lenders best interests are in helping you keep your home. Foreclosure is expensive for lenders, mortgage insurers, and investors. They made a bet on you. If they are correct with this bet then they get rewarded with 30 years of interest. If they are incorrect and you lose your home they do not make as much and could possibly even lose money. In addition, HUD/FHA, many private mortgage insurance companies, and investors like Freddie Mac and Fannie Mae require lenders to work aggressively with borrowers who are facing money problems and willing to try and make it work.
Lenders have options available to them to help you keep your home. These options work best before you fall behind or when you are only one or two payments back. The longer you let it go, the fewer options that will be available to you. So, again, contact your lender as soon as possible.
As soon as you realize you will not be able to meet the obligations of your mortgage you should contact your mortgage lender to discuss your circumstances. While there is no guarantee that any assistance or relief will be given, most mortgage lenders are willing to explore every possible option. Do not assume that your problems will somehow, magically, correct themselves. You will lose valuable time being overly optimistic in this way. You can more easily adjust if things go better than expected rather than trying to correct a situation that has begun to get out of hand.
Locating Your Lender’s Contact Information
You can locate your lender’s contact information in the following places:
- Your monthly mortgage billing statement
- Your payment coupon book
- Do an internet search for “Your Lender’s Name” + “Contact Information”
Information That You Should Have Ready When You Call
Just like any customer service call, your lender will ask you for some information upfront to be able to assist you quickly and efficiently. Prepare yourself for the call so that things go smoothly. Your lender will typically need:
- Your loan account number
- A brief explanation of your circumstances
- Recent pay stubs, benefit statements, tax returns, and/or all your other forms of income verification.
- A complete list of your household expenses
You should expect to have more than one phone conversation with your lender. Most often, your lender will mail you a “loan workout” package. This package contains information, forms, and instructions to help you begin the process of saving your home. If you are serious about being considered for an assistance program, you must complete the forms and return them quickly. The completed package will be reviewed and the lender will discuss possible solutions with you.
Do not disregard mail from your lender.
If you don’t contact your lender in advance they will inevitably attempt to reach you by phone and mail soon after you stop making payments. It is important that you respond to the mail and the phone calls. If your lender doesn’t hear from you they will be required to start legal action that will increase the cost for you to bring your loan current. You don’t want that to happen.
Prioritize Your Debts
When you fall into financial hardships you will need to tighten your budget. This may require that you prioritize the bills that you pay and the ones that you do not. Keep in mind the necessities for you and your family. This includes food, utilities, and shelter.
When you become negligent on any of your bills it will negatively impact your credit score. There is no doubt about that. However, if you stop making your mortgage payments you could find yourself on the streets. After you ensure that you have food and water to survive, your very next expenditure should go to your mortgage payment.
If your income has been stopped or reduced, first consider eliminating or reducing your other expenses. Dining out, entertainment, cable, internet, cell phones, your second car, and even your telephone services should be on the chopping block until you can make ends meet. You should be taking any responsible action that will save you money.
If you are still unable to meet your obligations you should tap into any other financial resources available to you including:
- Selling any valuable assets you may own
- Your savings
- 401k accounts
- Stocks, bonds, or other investments
- Life insurance
- Credit lines
In addition to speaking with your lender, you may want to contact a non-profit consumer credit counseling agency that specializes in providing help in restructuring credit payments. Credit counselors can often reduce your monthly bills by negotiating reduced payments or long-term payment plans with your creditors. The majority or counseling agencies are reputable and provide their services free of any upfront charge. They may require a small administrative fee that is tied in with your ongoing monthly payment plan however. This is very worth it. Beware of any counseling agencies that require a large upfront fee or donation.
- For consumer debt advice contact the National Foundation for Credit Counseling: https://www.nfcc.org/
When you call a consumer credit counseling agency, you will be asked to provide current information on your income and expenses. Make sure you ask the agency what their fees are before you sign any documents.
Create a New Budget
Over 25 million Americans are living paycheck-to-paycheck and just one event could cause a financial panic. You would never set out on a cross-country road trip without consulting a map. Likewise, you can’t expect to overcome a financial hardship without first developing a plan for spending and saving.
There are some simple steps that you can do to help you create, and stick to, a budget that will get you through your rough spot.
Thoroughly Track Your Spending
The first step to developing a budget is to track your expenses very closely. Down to the dollar. Be sure to record every single purchase you make. There are smartphone apps for this or you can use the old fashioned pen-and-paper technique. You can usually uncover a lot of money you had no idea you were spending just by tracking the tiny, recurring, expenditures that you are making.
Once you know where your money is going you can begin to think about how to redistribute it accordingly.
Cut, Cut, and Cut Some More
Now that you have a list of your monthly expenditures you can prioritize that list from most important to least. Don’t be silly when putting things in order. Cable TV is not a necessity. Neither is your internet or second car. These are creature comforts and depending on how much you need to cut to make ends meet you will be looking at losing a lot of these. Be realistic with what you need.
Add in Some Fun – Get a (Cheap) Hobby
When you get into the groove of cutting excess you may begin to see that you will no longer be able to eat out, go to the movies, or buy parts for that hot rod you want to rebuild. It is still important to have some forms of entertainment in your life, however. While you may not be able to do expensive things on a regular basis you can still plan to enjoy your life. The trick is to find an inexpensive hobby. Maybe you always wanted to write a book. Start a new workout routine. Begin a craft business making furniture out of wooden crates. Start a garden. Take up painting or playing the guitar. All of these things can keep you busy without breaking the bank.
Reduce, Consolidate, and Eliminate Credit Payments
If you have large sums on multiple credit cards, multiple car payments, or several other credit lines that you are paying on look to try and consolidate these. The more individual loans you have, the more you are paying on interest and not on the principle. Pay off small amounts that are outstanding and try to lump the others together. This will also make it easier to keep track of when payments are due. From here on out you should begin to save up and pay for things in cash instead of financing them if you can.
Find Ways to Increase Your Income
There are several income streams that most people just never look into. We will cover this more in-depth in the next section but to be clear you could and should have several streams of income. When you have more bills than money the simple solution is to decrease your debts and increase your income. A budget will help decrease your debts – the next section will help increase your income.
Increase Your Income
If you are struggling to make your mortgage payments then there are two things to do to fix a financial quandary. First, reduce the amount that you spend. Second, increase the amount that you make. If you have recently found yourself laid off this might sound harder than it is but there are some simple things you can do to make more money.
Rent Out a Room
If you have an extra room in your home, a finished basement, an office that you don’t absolutely need, or a finished room above the garage you should consider bringing someone in to rent out the space. You can even rent storage space if you have a large garage or shed that is secure. Find someone that you trust, do a background check, check their references, and secure a deposit. Renting out any extra space that you own will be a great first step at making up the difference between your debts and your income.
Find Part Time Work or a Second Job
There are plenty of “gigs” that you can take on to supplement your income stream without having to sacrifice your day job. If you go to Craigslist or do a simple Google search for part time work in your area there should be some quality results. If might not always be the most glamorous form of employment but it just might be enough to get you through a rough patch. There are always night security jobs, umpiring or refereeing local sports events on the weekends, pizza delivery drivers, waiter/bartender jobs, etc. If you have a specialized skill, such as piano, golf, or search engine optimization, consider teaching or coaching people in your spare time. Find something that fits your schedule and fill your free time with some money making activities.
Create Your Wealth
If you are handy, crafty, or artistic you can put those skills to work by crafting and selling some items. There are plenty of people that take old wood pallets and turn them into rustic looking furniture. Write a book about something you are passionate about. Find cool rocks by the riverbed and wrap them in copper wire and sell them as jewelry. Paint some landscapes and sell your art in the local coffee shop. The options are only limited by your imagination here. Farmers markets, Craigslist, Etsy, and your own website are prime places to sell your created wares.
Semi-Passive Income Streams
One of the easiest ways to make some extra money is in your own backyard. If you have a little bit of land and a bit of a green thumb you can grow your way out of debt. Gourmet mushrooms, garlic, and herbs all go for a very high price to local restaurants who are always looking for fresh ingredients. You can harvest a healthy profit every 4-8 weeks depending on how you set up your mini-farm operation.
Search and Profit
If you enjoy long walks in the woods then you might want to keep your eyes peeled. Ginseng roots, certain flowers, wild mushrooms, rare stones, tree burls, and more can be found while out on the trails. Look into your local area’s natural resources and what is in demand. Make sure that you have the permission from the property owner and the proper permits required before you remove anything from mother nature but you can make some extra money by going on regular treasure hunts in your area.
Complete Piece Work
There are several companies that will pay you to do piece work for them. Whether it is assembling jewelry, writing an article, envelope stuffing and addressing, and more. It is usually a small sum per completed piece but if you work hard this can add up. Be careful of scams where they demand a high up-front cost. Make sure it is a reputable company and that they have good reviews. This will allow you to work from home in your free time and make some extra cash.
If you have a strong social network, or if you just are good at going out and talking to people, you can make money by selling other people’s products. In most cases you do not have to actually carry any inventory. Your responsibility is going to be to introduce new people to a company’s products and get them to buy. Some companies also reward you for signing up other sales people to do additional sales. You can join local networking groups and clubs to leverage your relationships even further to increase your earning possibilities.
Learn a Specialized Skill
Continuing your education is another way, even though it’s more long term, that you can increase your potential earning power. If you have recently been laid off, consider learning a new skill that you are interested in and do your best to master it. There are several high paying jobs that are in demand for the right skill set. Copywriters, website developers, bookkeepers, graphic designers, programmers, and more. You can get educated and certified in several of these fields in as little as 6 months to a year. At that point you can get a higher paying job, ask for a raise based on your increased skill level, or start freelancing your services on the side.
Do Not Underestimate the Importance of Having Good Credit
Maintaining good credit is important for job hunters. When you apply for a job, the employer probably will check your credit report to determine whether or not you have been sued, if you have filed for bankruptcy, or if you have trouble paying your bills.
Your future ability to purchase certain items, rent or buy a home, and complete other transactions often requires a credit check. Consumer credit agencies and your lender can help you explore solutions to keep your credit from getting ruined.
Explore Loan Workout Solutions to Keep Your Home
Firstly, if you can keep your mortgage current, do it. If you find yourself in a situation that it is impossible to keep your mortgage up-to-date there may be a program available to fit your particular situation. Check with your lender to find out which of these options may be available:
Your lender is always willing to discuss accepting the total amount owed to them in a lump sum by a specific date in the future. They most often will combine this option with a Forbearance.
Your lender may allow you to arrange for a reduction or suspension of payments for a short period of time. After that period of time expires, another option must be agreed upon to bring your loan current. This option is most appropriate to combine with a Reinstatement when you know you will have a source of income to bring the account current by a certain future date. Such sources of funds may come from a hiring bonus, investment distribution or sale, insurance settlement, tax return, or inheritance.
You may be able to work an agreement where you would resume making your regular monthly payments, in addition to a portion of past due payments each month until you are caught up.
If you can make your payments on your loan, but you do not have enough money to bring your current status up-to-date or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be modified by one or more of the following ways:
- Adding the missed payments to the existing loan balance.
- Changing the interest rate, including making an adjustable rate into a fixed rate.
- Extending the mortgage loan term.
If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be deferrable for several years.
If Keeping Your Home is Not an Option
If staying in your home and continuing to pay your current mortgage just isn’t doable you still have some options.
Sell Your Home
If you can no longer afford your home your lender will usually agree to give you a specific amount of time to find a purchaser and pay off the total amount owed on your loan. You will be expected to obtain the services of a real estate professional who can aggressively and successfully market the property in the short time frame allow to find a qualified buyer.
Pre-Foreclosure Sale or Short Payoff
If the property’s sales value isn’t enough to pay off your loan, your lender may be able to accept less than the full amount owed as a settlement for the account. This option can also include a period of time to allow your real estate agent to market the property and find a qualified purchaser. Monetary assistance may be available to satisfy additional lien holders and help toward paying a few moving costs.
A qualified buyer may be allowed to assume your mortgage even if your original loan documents state that it is non-assumable. They basically would just take over payments for you.
Your lender may agree to allow you to voluntarily “give back” your property as settlement of the debt. Although this options sounds like the easiest way out, you must usually attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. In addition, the lender will require that their loan is the only lien against the property. The lender will check for other liens such as recorded judgement of other creditors, second mortgages, and tax liens.
Advice if You Need to Move Out of Your Home
Going through a downsizing process can be stressful enough. If you need to move out you should consider hiring a professional moving company. This will help to ensure that the home you are leaving isn’t accidentally damaged, diminishing its value, on your way out. It also allows extra protection to your household goods. You will save time, stress, and gain many more options in regards to timelines, storage needs, and delivery schedules. Most people assume that hiring a moving company is very expensive. It is not. They have several services that you can choose from to help fit your budget. Talk to a professional Move Coordinator and explain your situation, what your needs are, and what you can realistically afford. They will be more than happy to work with you.
Here is more information on Hiring a Moving Company.
Beware of Predatory Lending Schemes
Most mortgage lenders are reputable and provide a valuable service by allowing families to own a home without saving the hundreds of thousands of dollars necessary to buy it in cash. However, there are a few unscrupulous lenders who make high risk second mortgages and engage in predatory lending practices that increase the likelihood the borrower will lose their home to foreclosure.
These abusive practices include making a mortgage loan to someone who does not have the income to make the payments, charging excessive interest, points, and fees, or repeatedly refinancing a loan without providing any real value to the borrower.
Borrowers facing unemployment or foreclosure are frequent targets of predatory lenders because they are desperate to find any “solution” to their situation.
Homeowners frequently receive refinance offers in the mail telling them that they have been “pre-approved” for credit based on the equity of their home. When you are wondering how you are going to pay your bills each month it may appear very attractive to borrow against your house. Consider this first, if you cannot make your current payments, increasing your debt, even for a temporary injection of cash, will make it more difficult to stay out of foreclosure moving forward.
Here are some scams to look out for:
A buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.
Phony Counseling Agencies
Offer counseling for a fee when it is often given to you at no charge.
Do not sign anything that you have not thoroughly read and completely understand. It is your responsibility to ask questions. Information is your best defense against becoming a victim of predatory lending, especially for desperate homeowners.
Frequently Asked Questions
Here are some of the most frequently asked questions from homeowners facing the loss of their homes.
How do I know who my lender is and how to contact them?
Look at your monthly mortgage coupons or billing statements for the name of your lender and their contact information.
I don’t remember what type of mortgage loan I have. How can I find this information?
Look on the original mortgage documents or call your mortgage lender and ask.
Do I need to keep living in my house to qualify or assistance?
Typically, yes. But call your lender to discuss your specific situation and get advice on options that may be available to you.
What type of information should I have ready to discuss with a lender?
Typical information requested by lenders in a workout package include a brief explanation of your circumstances, recent income verifying documents, and a list of your household expenses.
My employer has announced layoffs in the coming months. What can I do now?
You have already taken the first steps by educating yourself with this guide. Determine if the layoffs will cause you a financial hardship that will make it impossible for you to make your monthly mortgage payments. If so, consider other resources that you have available to pay your mortgage. Review your spending habits and see where you can cut expenses. If you have a lot of consumer debt, consider contacting a non-profit, consumer credit counseling agency. Take advantage of any employer offered resources. If you still believe that you will not be able to make your mortgage payment you should contact your lender right away.
Will there be any out-of-pocket expenses that I will be responsible for if I am approved for a workout option?
Some workout options do include expenses that the borrower is expected to pay. For example, recording fees for a loan modification. Because every situation is different, you should contact your lender for more information. However, if a lender has no contact with the borrower and has to start a foreclosure, the legal fees that the borrower will be expected to pay can be very expensive. To avoid unnecessary legal fees, call your lender as soon as you realize that your mortgage payments could be jeopardized.
Here is a list of some quality resources that you can use for more information.
Contact Information for Mortgage Lenders
Here is a list of some of the larger mortgage lenders and their contact numbers:
1st Nationwide Mortgage: 800-888-4333
Bank of America: 800-846-2222
Cendant Mortgage Corp: 800-257-0460
Chase Manhattan Mortgage Corp: 800-446-8939
Fairbanks Capital: 888-818-6032
HSBC Mortgage Corp: 800-627-4631
Midland Mortgage: 800-552-3000
National City Mortgage: 800-523-8654
North American Mortgage Company: 800-871-2590
Principal Residential Mortgage: 800-367-6448
Wells Fargo Mortgage: 800-766-0987
Washington Mutual Home Loans: 800-736-9090
Consumer Education on Credit
Job Seekers and the Unemployed
Researching What Your Home is Worth
Glossaries of Mortgage Terms
Licensed and Insured Washington Movers
Are you, or have you been, a homeowner facing the loss of your home? Do you have any tips or stories? Leave them in the comments section below!
View More Moving Resources