What To Do If You Can’t Pay Your Mortgage

If you can’t pay your mortgage or you’re worried about missing an upcoming mortgage payment, you’re not alone. Millions of Americans have turned to financial assistance as they face hardships paying their bills. Millions have faced job loss or illness because of the coronavirus pandemic, and the need for mortgage relief has never been greater.

If you’ve been struggling to pay your mortgage, the first thing you need to know is that you’re not alone. Millions of Americans are facing the same hurdles, and there are ways to resolve the issue before it gets too deep. 

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    Options when you can’t pay your mortgage 

    If you find yourself struggling to pay your mortgage, the good news is that you have options. The first thing you should do is to contact your mortgage lender to discuss your circumstances as soon as possible.

    Your lender may ask some questions about your situation, and may want information on why you can’t pay your mortgage, whether this is a long or short-term concern, and perhaps even ask details about your income, expenses and other assets. If you are a service member, make sure you disclose that, too.

    If you know you’re going to be unable to make your payment, call your lender before you miss the payment date. If you miss a payment, it can cause issues both with your lender and on your credit report. 

    If after speaking with your lender, you still can’t find an option, call a housing counselor at the Department of Housing and Urban Development. A HUD counselor can help determine whether you qualify for any federal programs.

    The other options you have are:

    • Forbearance: If you can’t pay your mortgage, you may have the option of forbearance. Forbearance is a temporary stop to your monthly mortgage payments, but when it’s over, you don’t get credit for those payments. You’ll still owe the back payments, but you probably won’t have to pay them all upfront.
    • Refinancing: You may be able to refinance at a lower interest rate if you’re struggling with your monthly payment amounts. There are costs that come with refinancing, though, so it can be a pricey fix.
    • Loan modification: There are times when your lender may agree to modify your existing loan to make it easier to afford your payments. That’s called a loan modification, and you’ll need to discuss it with your lende
    • Short sale: You may be able to sell your home for less than you owe on it. That’s called a short sale, and it means the lender agrees to take the hit on what they’re owed in return for the full proceeds of the sale.
    • Debt settlement: In some cases, you can settle the other debts you owe on to clear up some cash to make your mortgage payments. This is possible with a debt settlement.
    • Selling the property: If you need to get out from under the mortgage, you may need to sell the property before it goes into foreclosure. This can take a while, but it will resolve the issue of being unable to make payments.
    • Renting the home: If you can’t pay your mortgage, you have the option of renting it to someone else to help pay the monthly note. This can get you out of a sticky situation, but you’ll still need to find a new place to live.
    • Deed in lieu of foreclosure: A deed in lieu of foreclosure occurs when you sign over the title of your home to the lender in return for not foreclosing on the house. This can be an option in some cases, but it’s not likely to happen if you owe a ton more on your loan than your home is worth.

    What is mortgage forbearance? 

    Mortgage forbearance is a temporary pause in your mortgage payments due to financial constraints. Entering a forbearance agreement means you can miss your mortgage payments without damage to your credit or loan status, but only for a set amount of time.

    Under the CARES Act mortgage relief program, if you have a federally backed loan (FHA, VA, Fannie Mae, Freddie Mac, etc.), you can request forbearance for up to 180 days with no additional fees or penalties.

    In order to enter a forbearance agreement under the CARES Act, you just need to explain to your lender that you have a pandemic-related financial hardship. Keep in mind, though, that the interest will still accrue and you will still owe the missed payments once your forbearance period is over. However, you likely won’t be required to pay all of the missed payments up front.  

    Refinancing your mortgage 

    With current refinance rates at record lows, refinancing your mortgage to reduce your payment could be a great way to save money if you can’t pay your full mortgage. It’s important to remember, though, that refinancing comes with some pretty hefty costs, including a new set of closing costs, which could make it more expensive than it’s worth to do. You’ll have to weigh the pros and cons and crunch the numbers to see if it’s the right move for your situation.

    Repayment plan 

    You may be able to enter a repayment plan with your lender, which would allow you to make up your missed mortgage payments over time. What this looks like will depend on your lender, but in most cases, you can make partial payments on top of your monthly mortgage payments to get caught up. You’ll have to check with your lender to see what they offer, though.

    Before you enter into any repayment plan, make sure you understand the requirements and be certain that you can make the new payments. If you can’t, you’ll be in a tough predicament again shortly.

    Loan modification 

    A loan modification may also be an option if you can’t make your mortgage payments. A loan modification is a way to change your loan’s repayment schedule on a permanent basis.

    Loan modifications are most common with secured loans, and they are designed to keep you from defaulting on your loan by providing a manageable way for you to get back on a regular payment schedule. Loan modifications are usually granted to those in a financial crisis due to outside factors like a natural disaster. 

    Short sale 

    A short sale is an option if you owe more on the home than it’s worth. With a short sale, your lender agrees to accept the amount you sell your home for as a full payment on the mortgage, even if it’s less than you owe on the loan. This will have a negative impact on your credit score because the mortgage account will appear as “settled,” which is a red flag to any future lender. 

    One obvious downside to the short sale is that you will no longer own the home, so you will need to arrange another living situation. It could be a viable option if you need to get out from under the loan, but it’s not the best one if you have other options.

    Other options when you can’t pay your mortgage 

    While it may not seem ideal, selling your home (if it’s worth more than you owe, that is) could be the best bet for you financially.

    If selling is not an option, you could opt to rent your home to cover your mortgage payments. In that situation, though, you would need to find alternative housing and would also need to consider repairs, taxes, upkeep and insurance, which would still be your responsibility as a landlord.

    You may also be able to work out a deed in lieu of foreclosure. That agreement lets you hand over the deed to your home to your lender, who will then release you from the mortgage. You will no longer own the home or the debt, but as with the short-sale option, this will negatively affect your credit.

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    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Editor

      Angelica Leicht is a writer and editor who specializes in everything mortgage-related for The Simple Dollar. Her work has spanned topics that include lending product reviews, interest rate trends, racial biases in mortgage lending and the role of fintech in lending practices, and has appeared in publications such as Interest, Bankrate, The Spruce, Houston Press and VeryWell, among others.