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Behind on Payments, Want to Avoid Foreclosure? Bayou City House Buyers can Help provide Solutions
Having trouble paying your mortgage?
Don’t panic — you have several options. And you’re not alone.
About 1 out of every 20 American homeowners is behind on mortgage payments, according to recent data from CoreLogic, a financial services firm.
When you need help, your first step is to promptly contact your loan servicer to explain the situation.
“Sometimes dealing with a servicer can be difficult,” acknowledges Ira Rheingold, executive director of the National Association of Consumer Advocates.
He says a housing counselor, including those affiliated with the National Foundation for Credit Counseling, or NFCC, can help you communicate with your servicer and understand your alternatives.
Here are six ways to help you catch up when you’re behind on your mortgage.
Forbearance
Forbearance puts your mortgage on hold temporarily. The payments are suspended or reduced for a time, and you agree to repay with a lump sum or in installments once the pause period ends.
During forbearance, the record reflects that you’re current on your mortgage.
This option tends to be the best fit for “people facing a short-term financial hardship or disruption of income,” says Matt Ribe, senior director of legislative affairs with the National Foundation for Credit Counseling. “It’s simply a way to stall payments without being considered delinquent.”
This option doesn’t involve underwriting or much work on the servicer’s part. The downside is you’ll pay more interest by effectively stretching out your mortgage term.
Repayment: Installments or lump sum
With a repayment plan, you make your regular payment amount, plus extra, for as long as it takes to make up for the late payments.
This is an option for homeowners who have remedied their financial problems and can handle an even larger monthly obligation. “It can work, but know your financial situation,” Rheingold cautions.
If you can pay off the back mortgage payments in a lump sum, the servicer makes your account current and reinstates your loan. Loan reinstatement is a way to stop foreclosure, too. But there could be fees involved.
“You may need a lot of money to make that happen,” says Rheingold.
The challenge is coming up with a big chunk of money. And borrowing it is probably not a good strategy if you’re just recovering from financial woes.
Loan modification or refinance
A loan modification is almost like a refinance. You start a new loan with a longer payoff term or a lower interest rate.
“It brings you current and funds a new payment level that’s affordable to you,” Ribe says.
Loan servicers will want to know your financial problem is behind you. “They want to make sure the borrower can afford that payment,” says Wolff.
Typically, you have to meet some criteria, such as proving a financial or personal hardship.
Some mortgage servicers will green-light a straight-up refinance loan for troubled homeowners. A refi does require underwriting and some work on the servicer’s part. But the servicer already has all your documentation and “can do it fairly quickly and cheaply,” Rheingold says.
