The good news? Mortgage delinquencies have fallen from their heights during the economic bust a few years’ back.
The bad news? Many people are still behind on their mortgages. In fact, five percent of U.S. mortgage payments are delinquent by 30 days or more.
Homeowners behind on their mortgage find themselves between a rock and a hard place — unable to make payments and staring at unsavory, credit score-crushing options.
But if you’re one of them, you DO have options. We present the most common ones below, as well as their upsides and unfortunate downsides. Think of the following as an open house. Only instead of walking through a prospective home to get a closer look, you’re walking through — and getting a closer look at — the options available to you if you can no longer afford your mortgage, including selling your home fast.
The Consumer Financial Protection Bureau (CFPB) puts it best: “A reverse mortgage is a type of loan that allows older homeowners to borrow against the equity in their homes. It is called a “reverse” mortgage because instead of making payments to the lender, you receive money from the lender.”
Reverse mortgages can help you access the equity in your home to handle day-to-day expenses and emergencies, establish an equity line of credit, and more.
Do you want to leave your home to your children? Is the loan only in your name and not your spouse’s? Could you be moving anytime in the near future? Do you anticipate any problem at all making payments on property taxes, homeowners insurance, and/or home maintenance? If you answered “yes” to even one of those questions, a reverse mortgage can complicate your finances at best and at worst, leave you or your heirs without a house.
Law website Nolo.com describes loan modifications for mortgages as “a permanent restructuring of the mortgage where one or more of the terms of a borrower’s loan are changed to provide a more affordable payment.” Modified terms may include interest rate and the length of the loan.
A loan modification can lower your mortgage rate, decrease your loan term, and bundle closing costs into the new loan.
There are a lot of loan modification scams. A whole lot. Separating the good guys from the bad guys is almost a cottage industry in and of itself. MakingHomeAffordable.gov has some information that helps, as does the Federal Trade Commission. A loan modification can be very beneficial, but you need to advance carefully to avoid falling prey to a mortgage relief scam.
Refinancing your mortgage means you are replacing the old mortgage with a new one that includes terms more favorable to you; a lower interest rate, for example. This is how refinancing a loan is different than modifying a loan: modifying a loan makes some adjustments to the loan but keeps the same loan in place.
Refinancing a loan can improve the terms for you, such as decreasing your interest rate.
Getting the most out of a mortgage refinancing scenario requires the stars to align just so: you’re not planning on moving soon, your credit is good, you won’t have a problem paying closing costs, you’re not interested in tapping into your home’s equity … and so on. For some people, that’s enough stargazing to require a call to both your mortgage lender and Neil deGrasse Tyson.
From the CFPB: “A short sale, which is a type of loss mitigation, is a sale of your home for less than what you owe on your mortgage.”
If you can swing a short sale, it’s possible that you’ll be able to pay off your mortgage even if the sale brings in less money than the balance remaining on the loan. Plus, any time you can avoid foreclosure, things aren’t all that bad.
We’re now at the stage of our “mortgage affordability options” open house where your credit score will take a hit. Possibly a big one. A short sale can take your credit score down by as many as 125 points.
Why do you need to worry about your credit score? Because your credit score helps creditors “determine whether to give you credit, decide the terms you are offered or the rate you will pay for the loan.” A good score makes it easier to get a loan, rent an apartment, and qualify for lower insurance rates.
In a deed-in-lieu of foreclosure agreement, your lender assumes ownership of your home rather than have it enter the foreclosure process. It’s often considered alongside a short sale and only marginally better than a full-on foreclosure.
The primary way a deed in lieu of a foreclosure is helpful? It isn’t a foreclosure. There aren’t many helpful turns at this stage in our open house tour.
Some experts believe that your credit score suffers from a deed in lieu of a foreclosure as much as it would an actual foreclosure. Factor in any damage your credit score received from missed mortgage payments, and you have a scenario that will haunt your credit score for a long time. And if you plan on buying another home, make sure those plans are no sooner than two years off, and maybe as many as four years. That’s how long Fannie Mae and Freddie Mac will wait before purchasing mortgages under deed in lieu of foreclosure circumstances.
Lenders are also hesitant to agree to deed-in-lieu of foreclosures. Why? They worry the homeowner could sue at a later date and claim they didn’t understand what they were doing; they’re on the hook for any second or third mortgages the homeowner may have; and finally, they want to be certain the financial distress is real.
USA.gov defines a foreclosure as “a situation in which a homeowner is unable to make mortgage payments as required, which allows the lender to seize the property, evict the homeowner and sell the home”.
A foreclosure helps in that it alleviates the stress and pressure the homeowner feels over missed mortgage payments and an uncertain future.
You can no longer live in the place you call home. Foreclosures can damage your credit score to the tune of 250-280 points and may stick around on your credit report for as many as seven years. Foreclosure is so damaging to your credit that it can make your whole life more difficult, from applying for a credit card to renting an apartment. You’ll face years of expensive and limited credit opportunities. You may even face limited job opportunities since some employers look at credit scores when evaluating potential applicants. You’ll also need to wait three to seven years in order to buy a home again.
Sadly, the consequences of foreclosure don’t stop there. The list of long-lasting and debilitating downsides just keeps growing. Consequences include:
And the final nail in the coffin of foreclosure? The stress and angst over foreclosures have encouraged many scammers to take advantage of unsuspecting homeowners struggling to pay their bills. It’s best to avoid foreclosure at all costs.
Bankruptcy — specifically chapter 13 bankruptcy — allows people with regular income to repay all or part of their debts over anything from three to five years. An important feature is that it can help homeowners avoid foreclosure.
Filing bankruptcy provides some breathing space to people faced with severe financial hardships, a chance for them to receive the support necessary to address their income problems.
This option does the most significant amount of damage to your credit score, wiping out anywhere from 130 to 240 points. A bankruptcy can stay on your credit report for as long as a decade. As far as personal finances are concerned, bankruptcy is a weapon of mass destruction best avoided if at all possible.
Refinancing, foreclosing, filing for bankruptcy: all are options the struggling homeowner can leverage when behind on a mortgage. But selling your house to a new owner can be the fastest and most fiscally viable path — one that won’t linger on a credit report and leave you indebted to a years-long recovery process. In fact, “sell my home fast” is an option some homeowners aren’t even aware of.
An outright sale has the potential to alleviate financial pressure and emotional stress, generate quick funds for the next chapter in your life, and get it all done within a relatively brief period of time. Choosing HomeGo to usher you through the process also means you don’t have to waste time or money making repairs, deal with the aggravation of one unexpected showing after another, concern yourself with the uncertainty of lenders, or pay commissions, closing costs, or service fees. Of all the paths available to a homeowner struggling with their mortgage, this one carries a lot of pros for those you can’t afford their mortgage.
Even though the property has likely gone from “a dream come true” to “a heavy burden,” it’s still a place that seemed very special at one point in your life. Letting go is hard. It’s only natural to feel this way.
Tackling all of the problems that arise from struggling to pay a mortgage exacts a higher toll mentally and financially than many people realize. That’s one of the reasons every expert suggests dealing with the issue as soon as possible rather than postponing it. But if you’re at a point where looking at foreclosure and bankruptcy, you owe it to yourself to invest 10 minutes with HomeGo on a brief tour of the home to see what we could offer you for it.
A fast home sale may be your best route to a better tomorrow, especially if you’re so far behind on the mortgage that you simply can’t afford to keep up. It could even help save your credit. For homeowners seeking speed, convenience, simplicity, and a 100% stress-free home sale, call HomeGo today at 866-507-9030. We’re here for you no matter your situation.
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