Everyone gets into financial trouble at some point or another. Maybe high hospital bills, car repair fees, or the temporary loss of a job has thrown you into a tizzy over your mortgage payments. If you want to avoid missing mortgage payments or going into foreclosure, here are some steps you can take.
1. The first step is to make sure you aren't getting more house than you can handle. When a mortgage lender offers you $150,000 for a house, step back and see what those monthly payments would look like for you. Would they leave any wiggle room in your budget or any room to stock up some emergency savings? If not, consider opting for a smaller loan. If you shop around, you may find that you can get almost as much house for a lot less money.
Since people who go into foreclosure very often have too much house to begin with, this is the best preventative step you can take. Mortgage lenders only look at your income and your debt, and they can't take all your needs and expenses into account like you can.
2. Next, as soon as you get your mortgage, try to pay ahead a bit. This will buy you some time if the worst ever does happen. Make an extra mortgage payment in one month, or start paying down extra principle by writing the check with an extra $25 a month added in. Paying a month ahead is the best way to give yourself some financial insurance if you should ever lose a job or have financial difficulties one month.
3. Try to have an emergency fund. Paying ahead on your house is good, but having an emergency fund is even better. Figure out all your monthly expenses – only those things you absolutely must pay. Then, little by little stock back three to six months of expenses in a savings account that you only use for emergencies. This provides huge foreclosure protection!
4. If you aren't in a place where you can take any of these steps and the worst does happen, don't panic. Make a list of priorities that you need to follow each month, starting with things like food, water, and heat that your family needs to survive. Your mortgage payment should go near the top of the list, above student loan and credit card payments or even car payments. If you get through this list but still can't make your mortgage payment, contact your lender right away.
5. In general, lenders are helpful if you contact them as soon as a problem occurs. They don't want you to default on your loan because this costs them profit. They may help you come up with a payment plan to catch up on your mortgage. This is especially helpful if the problem was a one-time event.
6. Another option is to try to renegotiate the terms of your loan. Sometimes you can extend the loan's terms, get a lower interest rate (which translates to lower payments), or even roll the overdue amount into your mortgage and start amortizing that payment, too. These options can keep you in your home even if you have long-term financial problems.
7. Finally, if you absolutely can't afford to continue paying your mortgage. Don't walk away yet. Sometimes you can avoid a foreclosure with a short sale, in which you sell the house below market value, most likely, and the lender forgives the part of the loan you don't pay off with the proceeds from the house. You may also be able to take out a private loan to tide you over on your mortgage while you sell it regularly.