Last year, the average sale price of a home in Ohio was about $135,000. The median household income was around $47,000. That discrepancy means that a cash purchase is not an option for many people. While the number of cash purchases has risen in recent years, the majority of buyers still need to take out a mortgage.
If you can’t make your mortgage payments and you go into default, you’re at risk for foreclosure. The bank will be able to take your home and sell it out from under you. If your home sells for less than you owe on it, you’ll still be liable for the difference. That leaves you with no home and leftover mortgage debt. A foreclosure will also put a big dent in your credit score, making it harder for you to purchase another home, rent an apartment, or even sign up for a cell phone plan. In order to stop foreclosure once it starts, you must pay the entire outstanding amount of your loan.
Of course, avoiding foreclosure can seem impossible if you’re short on cash. The average Ohio mortgage loan was for around $155,000 last year, with average monthly payments of about $790. That’s about 20% of an average Ohioan’s monthly income. Twenty percent is a big chunk, and may become overwhelming if unexpected expenses pop up. Perhaps you need to put new tires on your car or a new roof on your home. Perhaps a family member is sick or injured and needs expensive medical care. The strain is even worse if you have a second mortgage. What can you do when you want to keep your home, but the mortgage payment is too much to handle?
You may be able to reach an agreement with your lender to modify the terms of the mortgage loan. Reach out to your lender as soon as you know you may not be able to make a payment. Explain why you won’t be able to make the payment (for example, an illness in the family or a natural disaster) and ask the lender if you can alter the terms of your mortgage. Your lender will have internal procedures and options for mortgage modification, but in general you may be able to extend the life of your loan, lower your interest rate, or lower your principal balance. All of those options will lower your monthly payments.
If you are current on your payments and have a good credit score, you may be able to refinance your loan. Reach out to your lender about their particular refinancing programs. When you refinance a mortgage, you’re effectively taking out a new loan at a lower interest rate and using it to pay off your original loan. With a lower interest rate, your monthly payments will be lower. Your lender may charge hefty fees for refinancing, so you’ll need to balance the costs of the process against the benefits.
Home Affordable Modification (HAMP)
In the aftermath of the 2008 financial crisis, the federal government created the Home Affordable Modification Program (HAMP) to help homeowners lower their monthly payments. In order to qualify for HAMP, your mortgage loan must have originated before January 1, 2009 and your mortgage payments must cost more than 31% of your monthly household income. If you qualify for the program, your lender will work through a series of steps to lower your mortgage payment to less than 31% of your monthly income. The HAMP program also has options for homeowners who owe more than their homes are worth and for homeowners with second mortgages.
If you’ve missed payments due to a temporary hardship, you may be able to work out a repayment plan with your mortgage provider. Your monthly payments would be slightly higher each month to make up the missed payments over time. You may also be able to have any accrued late fees reduced or waived entirely.
If your hardship is severe, your mortgage provider may offer you a forbearance agreement. A forbearance agreement will temporarily reduce or suspend your payments while you and your mortgage provider work out a payment plan that is reasonable in light of your severe hardship.
You can also stop the foreclosure process by filing for bankruptcy. When you file for bankruptcy, you invoke the protection of the automatic stay. The automatic stay stops all collection actions, including foreclosure. If you file for bankruptcy under Chapter 7, you’ll be able to keep your home as long as you have less than $132,000 of equity in your home or less than $264,000 if you’re a married couple filing jointly. If you file under Chapter 13, you’ll be able to make your mortgage payments through your Chapter 13 payment plan. In either case, you’ll still be responsible for your mortgage after the bankruptcy process. However, making your payments will be much easier. Your unsecured debts (such as credit card and medical debt) will be discharged through your bankruptcy, freeing up your cash so you can make your mortgage payments. You may also be able to discharge a second mortgage.
The Bottom Line
If you’re struggling to make your mortgage payments, don’t wait for the bank to foreclose. You have options to lower your payments and stay in your home. If you’re considering mortgage modification, reach out to an experienced attorney to learn what options best suit your needs and your unique situation. Your attorney can negotiate on your behalf and make sure that your mortgage modification is legally binding on your lender.