If you are struggling to pay your mortgage there may be options that you have not considered.
• Increase your income
• Modify your loan
• Short sale
Increasing your income seems obvious and probably the first thing most homeowners would think of. Have you considered renting out part of your home or taking in a roommate to help cover costs. This has become more and more popular as homeowners have struggled to meet expenses.
Refinancing your current mortgage is an option for some, rates are low and taking your loan and spreading it over 30 years again, or perhaps 40, may reduce your payment enough to allow you to stay in your home. The biggest obstacle to refinancing in the current market is the reduced value of many homes. When your current mortgage is more than 90% of the current value of your home you will probably not be able to refinance. To get an estimate of the value of your home go to valuing your home. (One exception is if FNMA owns your loan. To determine if that is the case go to http://loanlookup.fanniemae.com/loanlookup/ ) Then go to www.makinghomeaffordable.gov/refinance_eligibility to begin the process.
Selling the home is a possibility if it is not ‘underwater’. ‘Underwater’ means that the current value of your home is less than your mortgage amount. Don’t forget to consider the transaction costs of selling a home. Typically sellers pay the agents commission of 5% to 6% and transfer taxes which are based on the location of the property.
Modifying your loan would be many borrowers’ first choice and is something the Obama administration has been hard at work on. Loan modifications can take many forms:
• Reduce the principal
• Reduce the interest rate
• Lengthen the time to payoff the loan
The Obama administration has created a government-run program called HAMP (Home Affordable Modification Program). Considerations include:
• Is this your primary residence:
• Is your loan balance less than $729,750
• Are you having trouble paying your mortgage? (You will not qualify simply because your home has lost equity.)
• Did you get your current mortgage before 1/1/09?
• Does your total housing debt (PITI) exceed 31% of your current income?
If none of the previous paths are successful you may want to consider a short sale. A short sale occurs when a seller lists their home with a Real Estate agent (preferably one who is SFR Certified, see below) for less than is owed on the mortgage.
SFR Certification, Short Sale and Foreclosure Resource. This is a certification that is earned by undergoing specific training from the National Association of Realtors, NAR. The training is designed to help agents gain the information necessary to guide sellers through the complexities of short sales as well as help buyers pursue short sale and foreclosure opportunities. These are critical skills in today’s marketplace where short sales and foreclosures are becoming commonplace and are yet remain full of hurdles. These types of sales are not for the faint of heart.
After the offer is agreed on between the buyer and seller, the offer is submitted to the lender in the hopes that they will approve the sale and agree to accept less than is due on the mortgage. There are numerous critical facets to this including:
• an extensive short sale package that goes to the lender
• guidance to tax professionals (there could be tax consequences from the mortgage relief that the seller receives.)
• guidance to legal professionals (it is critical to understand whether the lender could come after the seller for a deficiency judgment.)
One of the reasons to pursue a short sale over a foreclosure is the reduced impact to your credit scores.
Foreclosure is the least desirable option. If none of the solutions above are possible, you could end up getting foreclosed on by your lender. After the foreclosure is complete and you are moved out, the lender will put your house on the market with a local real estate agent and try to recover as much of their losses as possible. If you get foreclosed on your credit will suffer a significant hit (more than 200 points) and your ability to get any type of loan will be affected for many years.