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What To Do If You Default On Your Mortgage
If you are unable to make the monthly payment on your mortgage due to a loss of employment or unforeseen expenses and it has gone into default, there are various steps you can take to prevent your home from being foreclosed upon. Here are some useful tips about what to do if you default on your mortgage; the order in which to follow them depends upon your overall financial situation and other debts you may owe:
1. Communicate with the mortgage lending institution to determine if affordable payment terms can be negotiated. It is in the lender's interest not to foreclose upon homes if possible; they would rather keep collecting mortgage payments with interest than wait for foreclosed-upon property to sell.
2. Eliminate any extra ongoing costs from your budget, including subscriptions to cable TV, magazines, and optional types of insurance. Purchase generic or store brand grocery products if you don't already. This will help free up income, which can be used to pay the mortgage and stop it from being in default. Make sure other family members are aware of the need to curtail unnecessary spending.
3. Contact a low-cost or free credit-counseling agency. The Federal Housing Administration recommends this, pointing out that such agencies can help negotiate better payment terms with companies you owe money to (including those which may have indirectly contributed to making the mortgage go into default).
4. Be careful to avoid corrupt businesses which target people who are in default on their mortgage payments by claiming to provide them with assistance in avoiding foreclosure. Becoming involved with such schemes will only make the situation worse than it already is, and prevent you from finding a real solution.
5. If you have any optional possessions, which are valuable, consider selling them via classified advertisements to pay your mortgage. This includes items like laptop computers, all-terrain vehicles, jet skis, and big-screen television sets. Identical possessions of this type can be re-purchased in the future, while opportunities for people to buy back the homes they once occupied are infrequent.
6. If the lack of funds causing the mortgage default is only temporary and you expect to receive enough money within the next month or so, a short-term loan may be appropriate. Try to gain such a loan from someone related to you if possible. Payday loans are worth considering, but they generally charge high interest rates. Only do this if you are quite sure that the expected income will be received.
7. Give priority to eliminating major expenses or generating substantial amounts of income, before worrying about less significant issues. Don't spend a lot of time holding a yard sale or figuring out how to decrease your telephone bill by five dollars if your mortgage is in default for $800; start by considering what your most valuable possessions and largest ongoing expenses are, along with potential ways to increase your income.
8. If you decide to file for bankruptcy (most likely Chapter 13), it may allow you to obtain a different mortgage payment schedule and remain in your home. It will also postpone foreclosure on the home for a period of time. However, this will damage your credit record, and there is a fee associated with filing for bankruptcy as well.
Taking one or more of the above-mentioned actions can make staying in your current home possible and normalize your financial situation, so that you will no longer be in default on your mortgage. Don't convince yourself that the problem is too severe to be corrected. Try to remain optimistic, keeping in mind the belief that a solution is always possible, no matter how difficult the situation might be.
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