Unfortunately, changes to your financial situation can interrupt your plans. If you lose your job, go through a divorce or experience another type of economic hardship, paying your mortgage on a monthly basis can prove challenging. Even if you rely on money from your savings account to make ends meet, there’s a chance that you’ll burn through your cash.
Given the seriousness of this unpleasant situation, selling your home may seem like the only alternative. This way, you can get from under your mortgage loan and move to a cheaper place, thus salvaging your credit score.
However, you shouldn’t easily throw in the towel. It is important that you consider alternatives available to you. Selling your home isn’t the only solution. Here four options to help you maintain the property.
1. Inquire about a mortgage modification
If you lose your job and can’t afford your mortgage payment, you might be eligible for a mortgage modification. Contact your lender’s hardship department and explain your situation.
Getting a mortgage modification is a lengthy process. Not only with the lender review your current financial situation, you’ll need to submit a hardship letter that details why you can’t pay your mortgage.
Once the lender has all the facts, the bank may decide to permanently lower your interest rate or monthly payment to an affordable amount. The process can take up to 90 days.
2. Temporarily stop mortgage payments
Not everyone will qualify for a mortgage modification. However, you might meet the lender’s forbearance requirements.
Forbearance is similar to a mortgage modification in that the lender may reduce your home loan payments. But unlike a modification, forbearance is a temporary arrangement — lasting between three and six months.
Depending on your situation, your mortgage lender might also suspend your mortgage payments for the next three to six months. During this time, you’re not required to make a home loan payment, although interest will continue to incur each month.
3. Get a reverse mortgage
A government-insured reverse mortgage is another alternative to selling a home; but unfortunately, this option is only available to those over the age of 62.
“A reverse mortgage is a financial tool that allows you to access the equity in your home and convert it into tax-free cash,” reports the American Advisors Group.
This is excellent news for seniors who risk losing their home because they can’t keep up with the payments. The money taken from their equity can also be used for a variety of other purposes, such medical bills, credit card debt and home improvements. And since repayment isn’t required for as long as they live in the home, they don’t have to stress about another monthly bill.
A reverse mortgage “enables seniors to gain financial independence from their ever increasing living expenses,” says AAG Reverse Mortgage.
4. Rent out a room in your house
The decision to sell your house is a tough one. However, finding someone to rent a room in your house can provide the cash you need to stay in the property.
If you have a spare bedroom, a finished basement or a room over the garage, renting this space to someone can make a world of difference. In return, you might give this person access to common areas in the home, such as the kitchen and living room. Even if you only rent this space on a temporary basis, you’ll receive needed financial help until your finances improve. In the end, you can avoid foreclosure and a damaged credit score.
It’s important that you take immediate action when you can’t make your mortgage payment. The sooner you act, the better your odds of keeping the home.
Photo Credit: Danilo Rizuti