Many people are finding themselves in rather difficult circumstances these days. COVID-19 has seemingly turned the world upside-down. Businesses shuttered, people out of work, and all the while, bills still need to be paid. If you have a mortgage this can put your house at risk. Yes, it can also affect your credit score but more importantly you could lose your home and all the equity you’ve built into it.
Your stomach sinks every time the phone rings, knowing that a debt collector is at the other end of the line. What do you do? Where can you turn? And is there light at the end of the tunnel? Rest easy, if you find yourself facing these sorts of challenges, there are options available for you.
Missing Mortgage Payments
None of us want to be late with our mortgage payments, but if it does happen the process is pretty standard and one that you should understand. After two weeks, there will typically be a late charge added on and at 30 days late, the loan goes into default. Once this happens, your lender will report it as late the credit bureaus. This is where it’s starts impacting your credit score.
After four months (120 days), it is important to know that the lender can move to foreclosure, take possession of the property and have you evicted. Even if you’re able to restart payments, until you catch up everything that’s behind, you’ll still be accumulating negative hits on your credit report. It will be said more than once in this post; communication with your lender is critical. They don’t want to own your house, but they can’t help you if they don’t know your situation. Help them, help you.
What You Can Do
There is help available, and there are options out there for you, so relax a bit as millions of people are facing the same problem right now. Of course, program rules will vary from state to state but here are some things to keep in mind:
- Contact Your Lender
First and foremost, communication is key. If you become injured, lose your job, or are unable to work for any reason, your first move should be to contact your mortgage company. They may have programs available that can help you.
With the increase of hardships impacting so many, they may be able to offer reduced payments or grace periods to help ease some of the pressure. While these will vary, it is important to contact your lender and ask about all options available to you. Let them know what types of payments you are able to make, if any, how long you expect to be out of work, etc. Plan on keeping the dialog open.
- Loan Modification
This is an agreement between you and your mortgage company. Terms can include, reduced payments, reducing or postponing the interest rates, or moving missed payments to the end of the loan.
It could also include reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt. This may be necessary if you are facing a long-term reduction in your income or increased payments on an ARM.
- Forbearance
This means your mortgage payments will be reduced or cancelled for a period of time that you and your lender agree to. When that time has passed, you start making your regular payments again. You may also need to make a lump-sum payment or a few partial payments for a few months to catch up on the missed payments.
Forbearance is a great option if your income is reduced temporarily and you will be returning back to work, like we see during this pandemic. Late charges are not incurred and nothing negative will be reported to the credit bureaus, allowing you some time to get other the hump.
- Family or Friends
If there is someone you know who could help you out, don’t be too proud to ask for help. Even being able to put a few partial payments down can stave off the foreclosure process and may allow you to keep your home.
With this in mind, you certainly don’t want another nagging debt over your head, so don’t make any deals with people who are not completely behind you. If you can ask family, then do so.
- Contact a Housing Counselor
Contact a counselor who can help you understand what is going on and tell you about the places that can help you. They will assess your situation, answer all your questions, tell you your options, and help you prepare for a meeting with your mortgage company. Housing counseling services should be free or charge a very minimal fee.
- Sell The Home
While this isn’t likely the option you were hoping for, selling the home could provide the money you need to pay off the mortgage completely. This means you can avoid legal fees, late fees, and protect your equity in the property. The key here is to do it smartly. With the proper buyer, there are lots of ways to not only sell your house quickly, but also minimize closing costs, fees, commissions, potentially save any equity you have and start rebuilding your credit.
- Deed in Lieu of Foreclosure
This means you voluntarily transfer your property title to your lending company in exchange for the cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure.
You will also lose any equity in the property, but the forgiven debt may be excluded from income when calculating any federal taxes you may owe. However, it still must be reported on your federal tax return.
Difficult Circumstances
It can be a stressful time if you’re in a position like this and faced with making any of these decisions.
Take a deep breath, let it out. Know that you’re not the first and you certainly won’t be the last to be here. There’s no shame in it; the important thing to remember is that you have options. Exploring those options will ensure you come out the other side as intact as possible.
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