Mortgage loan modifications are typically for borrowers that are at risk of defaulting or are already delinquent on mortgage payments. In order to be approved for a mortgage modification, you will need to demonstrate your need, as well as your ability to make the modified payments. Your lender might put you on a trial modification to ensure you can afford the modified monthly payments.
If you find you still cannot afford the payments, even after a modification from the lender, you will need to explore your other options. Here are some things to consider.
1. Sell and Downsize
If it is a realistic possibility for you, selling your current home in order to move into a smaller, more affordable home may be the key to getting a monthly payment that won't break your bank account. You may be able to downsize to a smaller home, condo, townhome, or a similarly sized home in a more affordable area. Downsizing will reduce your monthly mortgage payment, but it will also likely reduce your utility bills, allowing you to pay down any other outstanding debts like credit cards and student loans. This is a specifically great option for retirees who are adjusting to living on a lower, fixed income.
2. Short Sale
A short sale is when a home is sold for less than the amount due on the mortgage. You may owe more on the home than what it is worth on the market. In this case, when you go to sell, you are unlikely to get enough to repay what you still owe your lender. The requirements for approval of a short sale will vary and not all lenders will agree to a short sale. A lender can ask the seller to submit a wide range of documents proving financial hardship, income, and assets. This path forward could protect your credit score more than a foreclosure.
Your home cannot be foreclosed on if you are in the middle of the mortgage modification application process or in good standing under modification. A lender can foreclose on your home if your application is rejected or if you default on the modified loan by not making payments. Foreclosure means losing your home as well as taking a significant hit to your credit.
Bankruptcy can sound like a scary step, but it may actually be a good way to keep your home. While it is not guaranteed that you will keep your home during a bankruptcy, there are ways to protect your home during bankruptcy proceedings. Throughout the duration of bankruptcy proceedings, your home cannot be foreclosed on due to the Automatic Stay function.
Chapter 13 bankruptcy is designed to let you keep your home as long as you can afford future (adjusted) payments. If you can keep your home through Chapter 7 bankruptcy, the other debts discharged should help you better afford your mortgage payments.
If you are unable to afford your mortgage even after loan modification, Veitengruber Law can help you explore your options. We can work with you to determine a path forward based on your needs and current financial standing.