What Happens If I Can't Pay My Mortgage Anymore?

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One question I get from people who are about to buy a home is about what happens if they cannot make their mortgage payments anymore. Buying a home is a big commitment and it locks you down to a specific geographic area. But it also commits a solid portion of your income to the mortgage payments each month. It is a bit different than not paying your rent, because it can have a bigger affect on your credit score.

You should be sure you are ready to buy a home before you take the step to do it. 

What Happens When I Cannot Make My Mortgage Payments? 

When you cannot make your payments, your loan will go into default. The loan company can then take the home back from you and you are evicted from the home. This may sound like the solution to the problem, because you no longer live at the home. However, this does not mean that you are not responsible for the remainder of the loan. Generally, the banks will sale the bank owned property and you will be responsible for paying off the difference in the selling price and what you still owe on the loan. This means that if your home went down in value or if you borrowed the entire cost of the home that you could end up owing money on your home after it is sold. This can have a lasting effect on your credit.

What Can I Do If I Am Having a Hard Time Paying My Mortgage? 

If you are having a difficult time making your payments, you should contact your mortgage company right away to see if there are any programs that may be able to help you.

You may be able to qualify for a temporary payment reduction or to refinance for a lower payment depending on where you live, and if you are past due on the loan or not. If you finance the loan so that it is longer, you can lower your monthly payment, but this does increase the amount of interest you will pay over the life of the payment.

You may also want to consider a short sale instead of just handing your home over to the bank. This may be the best way to deal with the debt. In a short sale, the bank agrees to forgive the amount that you still owe on the home. It can be tricky to work out with the bank, but may be worth it.

In addition to asking the bank for help, you may need to find ways to increase your income to help fix your situation. Taking on a second job and building up an emergency fund can help fix these issues. If it is a temporary income issue, like losing your job, working a few temporary jobs can help you stay in your home and avoid falling behind. You may want to be creative in raising money, getting a roommate may be an option depending on your circumstances. 

If you are having a difficult time making payments because the interest rate adjusted up, then it is time to refinance your adjustable rate mortgage. You may be able to lower your monthly payment by lowering your interest rate. Plus locking in an interest rate can prevent this from happening to you again. If this is not the case, but you have an ARM, you should take the steps to refinance your mortgage now. 

What Can I Do to Prevent This from Happening? 

The best thing you can do is to work to prevent this from happening.

It helps to be financially ready to buy a home. This means that you have money saved up for a down payment so that you have equity on your home from day one. This means you likely will not end up owing more than your home is currently worth. Another step is to pay off all of your consumer debt or credit cards. This frees up more of your income and makes it easier to manage your house payments. Finally, you need to be sure that you are purchasing a home that you can really afford. If you stretch yourself too much you may find yourself overwhelmed by your house payment, which can be very frustrating.

Another thing that you need to think about is how long you plan to stay in the home. If you are buying a starter home, you may plan on upgrading in a few years. If you are in a profession that requires you to move frequently, you need to take that into consideration.

Generally, you need to be able to stay in your home for at least five years to break even on the purchase. It is important to buy a home when you are ready and not because other people are pressuring you to purchase a home now. Be sure you are financially ready so that you do not end up regretting your home purchase.