10 Ways to Deal with an Unaffordable Mortgage

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10 Ways to Deal with an Unaffordable Mortgage

6.38 million people in the U.S. are at least 30 days late on their mortgage payments, according to a recent study by Lender Processing Services (LPS). Here are 10 of the most common alternatives to foreclosure. Does one of them sound promising to you?

1. Reinstatement

  • Benefit: Does not require the mortgage company or lender’s approval.
  • Drawback: Requires the homeowner to pay all back payments and fees.

2. Forbearance or Repayment Plan

  • Benefit: Allows the homeowner to make up back payments over time.
  • Drawback. Requires the homeowner be in a financial position to pay the current mortgage plus a portion of back payments owed.

3. Mortgage Modification

  • Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance on the loan.
  • Drawback: Requires that a homeowner qualify for the new payment and often requires full documentation.

4. Rent the Property

  • Benefit: Allows homeowner to keep the property indefinitely.
  • Drawback: Rental income often doesn’t fully cover the homeowner’s monthly costs, and there are many issues which can arise in the course of having tenants in the property.

5. Deed in Lieu of Foreclosure

  • Benefit: Lenders will often forego their right to a deficiency judgment
  • Drawback: Homeowner must vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.

6. Bankruptcy

  • Benefit: Does not require lender approval.
  • Drawback: The bankruptcy will only stall–not stop–the foreclosure process.

7. Refinance

  • Benefit: In some cases, this will lower the payments.
  • Drawback: In today’s market, refinancing will more often raise mortgage payments and can be an expensive process. Also, if the homeowner’s credit has already been damaged, they may not qualify.

8. Servicemembers Civil Relief Act (military personnel only)

  • Benefit: If qualified, this will lower payments on all consumer debt in addition to lowering mortgage payments.
  • Drawback: Must be active military to qualify.

9. Sell the Property

  • Benefit: Allows homeowner to avoid foreclosure and harvest some of their equity
  • Drawback: In many cases, homeowners do not have sufficient equity to sell their property without negotiating a short sale with their current lender.

10. Short Sale

  • Benefit: Allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual’s public record, and in many cases will allow the homeowner to aviod a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (vs 5 years for a foreclosure)
  • Drawback: Short sales can be a trying process in which a homeowner is best served by utilizing the services of a qualified real estate agent, experienced with short sales.

Options for Unaffordable Mortgage

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