I Lost My Job, Should I Sell?
Few things in life are as frightening as losing your job. If you own a home, you must find a way to continue making your mortgage payments when there is little or no money coming in. Fortunately, there are ways you may be able to avoid foreclosure.
Losing your job is a scary proposition in many ways, including the unknown factor of what's going to happen to your house when you don't have income to pay your mortgage. But job loss doesn't automatically mean you're losing your house as well. Regular communication with your lender can help you work out a plan to stay in the house, or you can take advantage of several other options.
Talking to your mortgage lender as soon as you lose your source of income is the best way to save your house. Many lenders offer several modification options to help lower your payment either permanently or temporarily. For example, if you've owned your home for several years and have some equity, refinancing might extend the term of your loan but give you a lower interest rate and more affordable payment. The downside is that your household must have some income for a modification to be possible. This could be income from a significant other, a part-time job or unemployment for you. Also ask about the government-backed Home Affordable Modification Program, which examines your existing income and debt ratios to help you find an affordable payment.
When yours is the only household income and it's suddenly gone, a loan modification isn't going to help you much. However, your lender might agree to a forbearance, which means the bank lets you skip a certain number of payments. You're still racking up interest during that time, but it can help keep foreclosure at bay while you look for another job. As part of the forbearance plan, you must pay extra for a few months after regular payments begin to get caught up -- this isn't removing payments, just delaying them while you get back on your feet.
Bankruptcy isn't a decision to take lightly. It negatively impacts your credit for at least 10 years, so it's best to hold this option back until you've missed several house payments and you believe foreclosure is imminent. Starting bankruptcy proceedings halts the foreclosure process, giving you more time to get settled in a job and get your financial situation in order. Bankruptcy allows you to keep your house even if you've missed payments, but you might be ordered to pay back part or all of the missed payments, depending on the type of bankruptcy you file. For the judge to agree to allow you to keep the house, you must have a household income that's sufficient to cover the mortgage payment.
- The federal government offers programs that can help homeowners who are having difficulty making their mortgage payments. These can be found at MakingHomeAffordable.gov. In particular, the Home Affordable Unemployment Program is designed to help people keep their homes in the event of a job loss. Depending on your situation, you may qualify for a reduction in your mortgage payments or to have your payments suspended for 12 months or longer.
- If your mortgage has been bought by Fannie Mae, there's a Payment Reduction Plan (PRP) for those in default or if default is imminent. With PRP, a borrower needs to have a willingness and ability to make reduced monthly payments of at least half of their regular payment -- including taxes and insurance and any other escrow items. That period of forbearance lasts six months, during which time the servicer works with the borrower on a more permanent solution. Read more at eFannieMae.com.
- If your mortgage is serviced by CitiMortgage, there is a program that allows borrowers to pay a flat $500 mortgage payment for three months after the loss of a job. Read more at CitiMortgage.com.
- Genworth, a private mortgage insurance firm, offers job loss protection on some of the loans it insures, paying up to $2,000 directly to the servicer for up to six months in the event the homeowner loses his or her job. The benefit period stays in place for up to three years after the loan closes, if the PMI remains in place on the mortgage. PMI is typically required when a borrower's down payment is less than 20%. It can be canceled once there is at least 20% of equity in the home. Read more about Genworth's program.
If your forbearance period has expired and you don't have steady income, your lender could start foreclosure proceedings. Continuing to talk to your lender often might delay foreclosure, especially if you think you have several job prospects on the line. However, it won't stop foreclosure indefinitely. Without a way to pay for your home, eventually, you will lose it and be forced to move out.
You want to refinance your mortgage loan to take advantage of lower interest rates. This makes financial sense: If you drop the interest rate on a 30-year fixed-rate mortgage loan of $200,000 from 6.5 percent to 3.75 percent, your monthly mortgage payment will plummet from about $1,264 to about $926. Unfortunately, you've lost your job and have no steady employment. Convincing a lender to refinance your mortgage loan will prove more challenging.
For some homeowners, however, it might make more sense to sell their home and start fresh. For homeowners who owe more on their mortgages than their homes are currently worth, short sales can be a viable option. In a short sale, the home is sold for less than the mortgage amount -- with approval from the lender -- and the difference is forgiven.
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