Five Options For People Who Can’t Afford Their Mortgage

Many people that I talk to today fall into one (or more) of the following categories:

• They can’t afford their current mortgage payment
• They currently owe more on their mortgage than their house is worth
• They have been declined for a mortgage recently

So I thought I would share a few options for people who are in one of these categories and are not currently in a FHA or VA loan.  If you are in a FHA or VA loan, there may be a possibility that you could streamline your mortgage and not need a new appraisal — but by and large, the people I talk to who are having problems are not in an FHA/VA loan.

What to do if you consider yourself to be in “mortgage-related trouble” and want to stay in your house?

First, don’t panic.

I know, this is easier said than done, but this is a business transaction that you must take care of or it will usually get worse.  The earlier that you get through the emotional part and get on with the logical business part, in general, the better the end result will be.

Second, speak with a lender who specializes in “short-refinances.”

These are not usually well-understood by loan officers and they take quite a bit of time and effort to do.  A short-refinance works very similar to a short-sale — but think of it like you are the one buying your house.  Generally speaking, the loan officer will negotiate a payoff that is 90-95% of your home’s current appraised value.

A short-refinance is basically the same thing as the upcoming FHA Hope for Homeowners program on October 1.  One great loan officer who specializes in these is Paul Dunn in Tucson, Arizona and he has some excellent information on his sites explaining more about the short-refinance process.

Third, ask your lender if they can help you with the FHA Hope for Homeowners program.

According to CNN/Money many lenders are not happy with the new FHA Hope for Homeowners program and instead of participating in this program, they are offering people loan modifications instead.  I want to emphasize that each situation is different and it depends on what your overall situation is as well as who your current lender is — so the key is to pick up the phone and start talking to your current lender about your options.

Fourth, contact a HUD-Approved housing counseling agency.

These HUD-approved housing counselors help people with getting loan modifications for free.  Depending on where you live, there is usually a housing counselor nearby and they can help you understand your options and work with the lender to “fix” your situation.

Fifth, contact a for-profit loan modification company.

There are many companies out there who will help you work with your lender to modify your loan for a fee.  These fees are different for each company, so I won’t quote their exact fee structures — but I will say that I usually see their fees in the thousands of dollars.  When someone asks me for a referral for a loan modification company, I point them to LoanSafe.org, but there are many others out there who perform similar services for similar fees.

If you have reached the point where you are considering using a for-profit loan modification company, there is a great post about loan modifications found on Rain City Guide written by Jillayne Schlike with excellent comments following it.

Sixth, if you are out of options, start considering other alternatives besides living in your current house.

If you have gone through the first five options and find yourself in a situation where you cannot afford your mortgage payment, you need to consider a short-sale before foreclosure happens.  A short-sale is generally much better than a foreclosure.  I am sure I will cover the difference between the two in another post soon!

September 25, 2008