Behind on Mortgage Payments? Here Are a Few Options to Get You Back on Your Feet
Contact Us Today for More InformationThe last year has been extremely hard on many families, and if you have taken on more debt to simply get by, you are not alone. In fact, many people have had such a hard time financially that they now find themselves behind on their mortgage payments and are unsure what to do moving forward. If you are in a similar situation and fear that you are facing power of sale, don't worry, as you still may have options that can help to get you back on your feet. If you are behind on your mortgage and are struggling to make ends meet, here are a few options that could help you to overcome your current financial problems.
Sell Your Home and Rent
One of the biggest mistakes homebuyers make, particularly when buying their first home, is getting in over their heads by purchasing a bigger home than they can afford. Unfortunately, it is easy to fall in love with your dream home and not think clearly about the finances involved with owning it. Ideally, you should not be spending more than 30% of your monthly income on your mortgage/rent. If your mortgage is significantly higher than this, this could be why you are struggling to make payments.
You may then want to consider selling your home and renting for a while until you get back on your feet financially. Without the weight of a mortgage weighing over you, it will be easier to get your finances in order. Additionally, depending on how much equity you have in your home, you may even be able to use profits from the sale to pay off some of your other debts. However, selling your home and renting may not always be the best option. Here are a few things you should consider before doing so.
1. How Much is Your Home Worth?
The first thing you will need to consider is how much you still owe on your home, and what your home is currently worth. The fact is that selling might not always be a good option as, depending on when you bought your home and how much you still owe, you may owe more than your home is currently worth, which could place you into further financial hardships should you try to sell. Even if your home is worth more than you owe, you will need to take into account closing costs and other expenses associated with selling a home. You could still end up with very little money, or you could even lose money, depending on how much your home is worth. Alternatively, if you bought when the market was low, your home could now be worth significantly more than what you owe, which could leave you in a better financial situation after you sell your home.
2. How Much is Rent in Your Area?
Before putting your home on the market, it is also critical that you look into rent rates in your area. Even if you sell your home, you will still have to live somewhere, and you may be surprised by the rent rates in your town. The last thing you want to do is sell your home and then struggle to make rent, and if you've owned your home for many years, you may be surprised to find that rent is more expensive than your mortgage. However, this may not be the case everywhere, and choosing to sell and then rent may still be a good option for some homeowners. Taking the time to do your research can help you to decide if renting is a realistic option for you.
If you choose to sell your home while you are behind on your mortgage, it is important to remember that any back payments/fees that you owe will be taken out of your profits from the sale, which is an important thing to consider when trying to decide what to do, particularly if you don't stand to profit much from the sale of your home. This makes it important that you talk to a real estate professional before moving forward with selling your home, as they can help you to decide if this is a realistic option based on what you owe.
Downsize Your Home
As we previously mentioned, it is not uncommon for first-time homebuyers to get in over their heads and simply purchase more home than they can afford. Alternatively, your financial situation may merely have changed, and you may now find your mortgage payments to be more than you can handle. Either way, if you are struggling to pay your mortgage, and you have begun to realize that you have a bigger house than you need, downsizing and buying a smaller home could be a great option.
Of course, as with selling and renting, this may not be your best option if your house is worth less than you owe, as you likely would not have money for a down payment on another home after selling. However, if you have significant equity in your home, downsizing could be a great way to get you back on your feet. Depending on how much equity you have, this could represent a large down payment on a small home, which would leave you with a much more manageable mortgage payment. This could help you to better manage your money, and you could even use some of the money you used to be paying towards your mortgage to pay off other outstanding debts. Downsizing can then be a great way to quickly get back on your feet.
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Look Into Refinancing
If you are struggling to make your monthly mortgage payments, you may want to consider talking to your lender about options for refinancing. Depending on a variety of factors such as your credit score/history, current interest rates, and the interest rate of your current mortgage, you may be able to save money by refinancing your home. With a lower interest rate, you may be surprised by how much you could save each month. Additionally, if you are able to extend your payoff date, you can significantly lower your monthly payment as you will be paying less in principle each month. While this option would take you longer to pay off your home, it may be ideal in helping you to recover if you are struggling financially.
If you have accrued other debts during the pandemic, and you have equity in your home, you may even be able to get a cash-out refinance, which allows you to borrow against your home's equity. Since mortgage rates tend to be significantly lower than other types of debt (especially credit cards), a cash-out refinance could help you to save money, consolidate your debts, and get out of debt quicker.
Finding yourself behind on mortgage payments can be frightening, as it can leave you worried that power of sale is imminent. Fortunately, there may be other options that could help you to get back on your feet without having to go through power of sale or bankruptcy. Feel free to contact us for advice on what options are available if you are behind on your mortgage.
