What are My Options to Keep My Home if I’m Behind on My Mortgage?

Many homeowners on Long Island and in the five boroughs find themselves behind on their mortgage payments and at risk of foreclosure.

The reasons may be different, but the result is the same. If you are in this situation you may have some options to keep your home, especially if your financial difficulties are temporary. But even if your financial situation is permanent and you know you won’t be able to meet your mortgage payments in the future, there is a way out.

Warning Signs of Foreclosure

Sometimes people overspend, accumulate debt and find that they are paying out more than they can afford on a monthly basis. However, it is also very likely that responsible homeowners have had a recent life experience that affects their ability to pay their mortgage. They may have gone through a divorce, lost their job or suffered an illness with unanticipated medical bills. Some people have a mortgage with an adjustable rate (ARM) where their payments escalate to the point where they are unaffordable. In order to figure out a good option to keep your home if you are behind on your mortgage, you have to determine the reason you got into trouble in the first place.

Understand your Mortgage

A good place to start if you are behind on your mortgage payments and you want to keep your home is to figure out what type of mortgage you have. You might be able to switch to a different arrangement if you qualify. Your loan servicer can help if you are having problems understanding the mortgage documents to determine your type of home loan. If you have an Adjustable Rate Mortgage, it may explain why your monthly payments are going up and help you predict if rates can be expected to go up even more in the future.

These are some of the common types of mortgages:

  • Fixed Rate Mortgage:

    • As the name suggests, a Fixed Rate Mortgage sets the interest rate for the life of the mortgage loan, although your payment may go up a bit if taxes or insurance costs increase, or if you need to provide additional escrow.
  • Adjustable Rate Mortgage:

    • With an Adjustable Rate Mortgage (ARM) your interest rate fluctuates, resulting in a change in your mortgage payments over time. Your monthly mortgage payment may go up substantially.
  • Hybrid Adjustable Rate Mortgage:

    • A Hybrid ARM sets fixed payments for a period of time, usually a few years, and then the loan reverts to an adjustable loan with the possibility of increased payment amounts.

Working with the Bank

If your financial hardship is temporary, you might be able to work things out with the bank to bring your mortgage payments current and avoid foreclosure.

  • Reinstatement Agreement

Your mortgage company may agree to a reinstatement. In a reinstatement agreement you pay the entire past due amount by a specified time plus any late fees or penalties. Reinstatement is a good option if your financial difficulty is temporary, such as a job loss and a transition to a new job.

  • Repayment Plan Option

If you have missed a few mortgage payments and you can’t pay the entire delinquent amount at once, the bank may offer you a repayment plan. With a repayment plan the bank will give you time to repay the past due amount by adding to your regular mortgage payment until you are caught up.

  • Forbearance Agreement

In a forbearance agreement, your payments are reduced or suspended for a period of time. You then resume your regular monthly payments plus a lump sum or partial payment until the loan is current.

If you live in a home you can’t afford, reinstatement, repayment and forbearance are not good options. You need to have the extra funds to catch up with your back payments, plus interest and other charges, and you will be left with the original amount of mortgage payment that you previously found unaffordable.

You May Qualify for a Loan Modification

Refinancing your home and changing your Adjustable Rate Mortgage to a Fixed Rate Mortgage is generally not an option if you are behind on your mortgage payments, especially if you are “underwater” on your home with no equity. You may, however, qualify for a loan modification that can change your ARM to a Fixed Rate Mortgage through the Fannie Mae Flex Modification program. To qualify, you must be facing long term financial hardship.

While a loan modification may reduce your interest rate and/or lower your monthly payments, it may stretch out the term of your mortgage to 40 years and add back payments to the end of the loan. If you do the math, you might discover that in the long run you will be paying far more for your house than it is really worth in exchange for the lowered monthly payment.

When Options to Stay Don’t Work

Even though you do have options to keep your home when you are behind in your mortgage, fighting to stay may not be the best idea. Many people in your situation simply don’t have the money to settle up with the bank, and even a small added amount to their regular mortgage payments in a repayment plan is not feasible. After all, if you can’t meet your monthly payment, you certainly won’t be able to meet the payment plus late fees, additional principal payments and other charges. Even if your monthly payments are lowered in a loan modification, you may end up in a worse financial situation in the long run and owe significantly more than the house is worth back to the bank. At this point, it is time to think about selling.

2 Ways to Sell to Avoid Foreclosure

  • Traditional Sale

You may want to consider moving to make a fresh start in a new house in order to avoid foreclosure. If you decide to sell your house, your mortgage servicer may postpone foreclosure proceedings if they see that your house is on the market or that a sale is pending.  This is a good approach if the proceeds of the sale of the house will cover your outstanding balance on the mortgage plus expenses like real estate agent fees.

  • Short Sale

If the proceeds of the sale of your house will not cover the balance due on the mortgage, an experienced professional may be able to convince the bank to accept a “short sale” and absorb the loss leaving you debt free. A short sale can provide time for your children to finish out the school year, and you may get money for relocation from the bank or another source.

Realty Warehouse can help explain your options

If you live on Long Island or in the five boroughs of New York City and you behind on your mortgage and facing foreclosure.

We specialize in helping homeowners find alternatives to foreclosure and achieve the best outcome. Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. You can count on us to offer the advice you need and provide effective alternatives in this extremely stressful situation.

Call, click or chat with Realty Warehouse for a 10 minute consultation that can change your life.

This blog is for informational purposes only, subject to change.

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