What If I Can’t Afford to Keep My Home?

By Mark Cole, HLP Chief Executive Officer

Despite record-low unemployment and rising household incomes, many homeowners continue to struggle to make their mortgage payment every month. The US Labor Department reports that approximately 7.6 million people – about five percent of working Americans — hold two jobs to make ends meet.  Other homeowners have suffered devastating property damage this summer due to earthquakes in California and Tropical Storm Barry, and are deciding whether to continue to keep their homes.

People with some income who continue to have trouble making their mortgage payments should consider contacting their mortgage company to determine if they can refinance their loan or qualify for a loan modification.  Mortgage companies do not want to foreclose on any loans and would prefer to work with homeowners rather than foreclose.  If you would like to contact your mortgage servicing company to apply for a loan modification, you may begin the process by visiting HLP’s Homeowner Connect.  Chat counselors are available to answer questions and help you understand the loan modification process.

Unfortunately, everyone is not able to keep their home. For those that have run out of options and have decided to leave, here are some recommendations on how to best exit the property and cause the least disruption to your financial health:

Contact a HUD-approved, nonprofit housing counseling agency.  These organizations specialize in finding solutions for homeowners in distress at no cost.  A housing counselor will help determine if you may have enough money available to continue making mortgage payments and help determine your best solution. For example, you may be able to sell a car or other possessions to raise enough money to make near-term mortgage payments.

In addition, if a counselor determines you cannot keep the home, they will provide possible solutions to minimize the damage to your credit. You can find a nonprofit housing counseling agency near you by checking HUD’s web site.

An Outright Sale of the Home.  If your home is worth more than you owe, selling it may make the most financial sense. If you decide this is the best course of action, consider renting again to save money for a down payment on a future home. In addition, remember that renters enjoy some advantages.  They don’t need to worry about paying for repairs and maintenance or real estate taxes. In addition, many rental properties have access to several amenities that homeowners can’t afford, such as swimming pools and tennis courts.

Rent Your Home. If there is a strong rental market in your area and the amount of rent you would collect would cover your mortgage payments, renting your home may also be a good option. But before making this decision, it’s important to consider that you would still be responsible for things like home repairs, taxes, and insurance.  But renting may also buy time for the home to gain more equity. 

A Short Sale. This involves finding a buyer for your home for less than the equity in the home.  This option will prevent a foreclosure, though you still may be liable for some of the first-lien mortgage debt.

On the plus side, anyone with a home financed by Fannie Mae qualifies for $3,000 in cash to relocate.  And, you may be eligible for future Fannie Mae financing in as little as two years.  

While a short sale may not seem to be a favorable solution, it will help keep your credit rating intact and keep you positioned to buy a home in the future.  People with a Fannie Mae-backed mortgage may qualify for a new mortgage in as little as two years – a much better situation than a foreclosure, which will keep you out of the market for seven years.

For Homeowners Over 62, A Reverse Mortgage.   A reverse mortgage lets homeowners age 62 or over draw a lump sum — or receive monthly payments — against their home equity. The primary benefits of a reverse mortgage loan are that a person doesn’t need to pay it back as long as you live in your home and you typically get the money tax-free.

Of course, you will still have certain responsibilities, such as paying property taxes and insurance and maintaining the property. Although neither you nor your heirs will have to pay back more than your home is worth in most cases, you might not have any equity left to leave to your heirs.  To learn more, check HUD’s web site to find a nonprofit counseling agency that specializes in reverse mortgage counseling.