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What to do About Your Mortgage When You're Facing Money Problems

When facing unemployment, unexpected medical expenses, or other financial strains, you may find yourself struggling to pay the mortgage.

The good news is you can avoid foreclosure and keep your home even if you’ve fallen behind. For example, the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development, and other government agencies will work with your lender to help you keep your home. The following tips, combined with common sense strategies, may help you avoid foreclosure.

1. Contact your lender as soon as possible.

Don’t wait to call your lender if you are having money problems – and definitely don’t avoid calls or letters from a lender trying to reach you. Many people avoid talking with their lenders out of fear that the lender will automatically initiate foreclosure proceedings. However, foreclosure is not the first step a lender will usually take. In fact, foreclosure is a long and expensive process for lenders and often results in a loss for them. Lenders much prefer you to keep your home.

In some cases, lenders are required to work with borrowers who are facing money problems to avoid foreclosure. Temporary solutions may include reduced payment plans, forbearance, and workout packages. You can also ask your lender if you would be eligible for any kind of mortgage modification – such as changing from an adjustable mortgage rate to a fixed rate, extending your repayment term, or adjusting the balance owed to reflect missed payments.

2. Talk to a housing or credit counselor.

A housing counselor can walk you through making a budget, learning about different workout packages for which you may be eligible, and may even negotiate with the lender on your behalf. Many housing counselors are affiliated with national and regional HUD-approved agencies.

3. Look closely at your income and expenses.

Can you increase your income? Perhaps you can ask for overtime at work, take on a second job, or start a side business at home. Otherwise, look to see what you can do to reduce your spending. What can you cut out? Can you pack a bag lunch instead of going out to eat during the work week? Little things might end up going a long way toward saving you the extra few hundred dollars a month that could make a big difference in your bottom line. Taking even small steps, like selling personal property and cutting out everything non-essential, can help protect against losing your home.

4. Pay the most important bills first.

When tightening your budget, pay for the necessities of life first – food, shelter and utilities. If you don’t make your mortgage payment, you risk losing your home. Pay that first, and try to work out arrangements for other bills. Particularly for unsecured debt like medical bills and credit cards, you have more leverage to negotiate. Not paying those will hurt your credit score, but it’s usually better than falling behind on mortgage payments.

5. Consider Chapter 13 bankruptcy.

If you are facing money problems making it difficult to pay your home mortgage, try some of the tips above. Small changes could yield big rewards, perhaps even avoiding losing your home through foreclosure. For more serious assistance, contact an attorney to determine what legal options may be available and to assist you with negotiating these options with your lender. For example, if you have steady income but are facing astronomical medical bills, a Chapter 13 bankruptcy may allow you to keep your home while reorganizing your debt into manageable payments.

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