Realty Times - How to Stay on Top of Mortgage Payments During a Short-Term Financial Crisis

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How to Stay on Top of Mortgage Payments During a Short-Term Financial Crisis

by Michele Dawson

With a job loss, divorce, illness, or death or illness of a spouse, you may have a difficult time making your mortgage payment. But don't despair - there are steps you can take to stay on top of your bills and avoid losing your home during this transition period.

One of the most important things you can do is take immediate action, according to the U.S. Department of Housing and Urban Development. First, examine how much money is coming in and how much you owe for your various bills. Eliminate unnecessary spending.

Then, take the following steps:

Contact your lender as soon as possible. Don't let embarrassment stop you from notifying your lender about your financial situation. HUD says most lenders want to help borrowers keep their homes. Foreclosure is expensive for all parties involved. Lenders have workout options to help you keep your home. But lenders are most accommodating when you are just one or two payments behind. The farther behind you get, the fewer options exist. Most lenders will help you explore your options.

Don't ignore mail from your lender. If you haven't contacted your lender and you start receiving letters when you're behind in making your payments, you need to respond when they contact you. If they don't hear from you, they will take legal action.

Talk to a housing counselor. If you don't want to contact your lender right away, call a HUD-approved housing counselor. He or she will help you assess your financial situation, review your options, and - most importantly - help you negotiate with your lender. Counselors are familiar with the work-out arrangements for various lenders.

Prioritize your debts. Under new budget constraints, you'll need to focus on food, utilities, and shelter. If you don't pay your debts, chances are your credit will be negatively impacted. Any money you have after paying for food and utilities should go toward your mortgage payment. In addition to contacting a housing counselor, you may want to contact a non-profit consumer credit counseling agency. A credit counselor can often reduce your monthly bills by negotiating lowered payments or long-term payment plans with your creditors. Most of these agencies provide their services free of charge. Be leery of an agency that requires a large fee or donation.

Keep your credit as clean as possible. Resist the urge to pay with plastic - you don't want to fall behind on additional debts and ultimately mar your credit report. This is especially important if you're trying to find a new job. Many employers check candidates' credit reports. It will also affect you if and when you buy or rent again.

Explore loan workout solutions. If at all possible, stay on top of your mortgage payments. If you are unable to do so, contact your lender to help you find a program.

Once you have contacted your lender and if it appears your financial situation is only temporary, you may be offered one of the following options:

Reinstatement. This means your lender may accept the total amount owned on your mortgage by a specified date.

Forbearance. This is often used in tandem with reinstatement. Your lender may allow you to arrange for a reduction or suspension of payments for a specified period if there is another option in the works in which your loan will be paid off. This is a good option if you know you will have a chunk of money coming to you - perhaps a hiring bonus if you will be starting a new job, investment distribution or sale, or insurance settlement or reimbursement.

Repayment plan. You may be able to renegotiate your payment plan, paying your regular payment plus an amount to bring you up to date on your past due payments.

Just remember, the worst thing you can do is ignore the situation and hope it will go away. The only way it will get better until you get back on your feet financially is through the services of a housing counselor, a lender workout program, or credit counseling - if not all three.

Published: April 23, 2002

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