What If I Can No Longer Afford My Home Mortgage?

There has been a steep drop in home prices around the country. Many homeowners are struggling with the drop in the value of their homes. To make matters worse, many families are experiencing pay cuts or job losses.

If you can't afford your mortgage, the best time to plan your strategy is when you realize you are going to miss the first payment. This allows for options to negotiate with the lender.

In addition, homes are difficult to sell because the home's value is less than what's currently owed on the mortgage. Be proactive, don't hide or feel ashamed.

A few options to consider are:

The first and the most appealing is a loan modification. This is when you negotiate with your lender and they agree to lower your payments to a level that is more affordable. A governing factor of a lender entertaining a loan modification agreement is your ability to prove financial hardship.

It is vital that you understand that if your lender grants a loan modification it is less likely this will lower you principal, but more likely that your interest rate will be reduced and therefore, your payment will be lower.

You should negotiate a permanent modification if at all possible and get any details in writing. There are temporary modifications, however, before you agree to a temporary modification be aware that there can be a balloon payment if you are subsequently not approved for a permanent modification. At this point, research is imperative on your part prior to any decision making. Also, make sure you get everything in writing.

The second option to consider is a short sale. A short sale means that the lender lets you sell your house for less than the balance of the mortgage owed. In this instance, the lender does not require that you pay the difference.

The reason a lender grants approval for a short sale is they are likely to get a higher price than if they sold it through foreclosure. Again, you must prove financial hardship to qualify. Also, note that the lender is the accepting party with regards to the offer from the buyer and has a right to reject any offer they deem too low.

The third and final option is foreclosure. This should be your very last resort. The bank takes back the ownership of your home and sells the property.

It is important to note that your credit rating will be affected in any of the above decisions. Also, note that when you go to rent a place, there will likely be a higher security deposit required, so plan accordingly. You must thoroughly understand all the above options. Speaking to a legal professional that specializes in Real Estate options is recommended.

Read more great advice from Diva Toolbox Contributor, Nisha Jackson on her website at http://financiallybrilliantwomen.com/