Lost Your Job? Here’s How to Keep Your Home!
If You've Recently Lost Your Job, Here's How You Can Prevent Mortgage Default.
Verify my mortgage eligibility (Dec 3rd, 2024)Even if you're unemployed, you can still avoid mortgage default by following the advice below!
Mortgage payments are the first expense out of our paychecks every month. If you suddenly find yourself out of work, making those payments might become difficult. While unemployment benefits may help you navigate the situation for a while, they won't last forever. The stress from this situation can lead to a lot of sleepless nights!
No one wants to lose their home. The mere thought would give anyone nightmares. Thankfully, there are ways to prevent that from happening. Here's how you can avoid mortgage default if you've recently lost your job.
Verify my mortgage eligibility (Dec 3rd, 2024)Step 1: Conduct an Insurance Review
You may be surprised to learn, but you can actually insure yourself for such situations. If you had the foresight to do so, you might have received insurance to protect your home from an unemployment-related mortgage default.
Genworth Financial offers an excellent involuntary unemployment insurance plan and is an excellent illustration of a mortgage-protection insurance program. The best thing about Genworth Financial's program is that it automatically signs you up for the plan at no cost when you use selected mortgage insurance products.
Verify my mortgage eligibility (Dec 3rd, 2024)The principles of mortgage protection are simple. If you become unemployed following the purchase of your home, mortgage protection insurance will kick in and cover you for the full amount. The coverage only lasts for the first couple of years (varies by provider), though.
Taxes, monthly payments, and home insurance payments are all covered as long as they do not exceed the agreed-upon limit. We used Genworth as an example previously, so let's go with them again. Genworth will provide coverage of up to $2000 per month for six months. If you are still unemployed by the end of six months, they will cease to cover the costs.
Since not all costs will be covered, and there are limits to the coverage, it is important that you only consider this a short-term fix.
Verify my mortgage eligibility (Dec 3rd, 2024)Step 2: Access Savings
As soon as you lose your job, the first thing on your mind should be to figure out how long your savings can sustain you. You should calculate this figure by considering the savings and then deliberating on your expenditures and subtracting it from the savings.
Remember that your mortgage payments are a valid expenditure, and on top of that, one that you cannot avoid. So add that to your calculations. You should also note that your savings will include your bank balance, unemployment benefits, and the severance package you received from your employer.
Verify my mortgage eligibility (Dec 3rd, 2024)If your calculations reveal that you have at least six to eight months of runway, then you may want to survive on your savings for a while. It is important to move to the next step while still having at least two months of runway left.
Step 3: Contact the Lender
Open and honest communication can prevent a lot of problems in life. In the case of mortgage default, it can offer you a chance to take control and ownership of the narrative. If you wait until you default, you may find that the lender is less keen to listen to you!
Verify my mortgage eligibility (Dec 3rd, 2024)By contacting the lender in advance, you can seek their assistance in re-organizing the payments in a way that prevents you from defaulting on your mortgage. After speaking to them personally, draft a hardship letter. In this letter, you should explain your employment situation, assure the lender that you are working hard to change it, and provide a realistic and agreeable timeline for its resolution.
The letter is important because it shows respect for the lender. You aren't shying away from your obligation and are instead taking full responsibility for it. You are also providing assurances that will hopefully make your lender see you in a more positive light - as a person fallen on hard times rather than a delinquent.
The Ohio Department of Commerce Finance Division provides an excellent sample that you can take inspiration from. Remember to mention details regarding your mortgage, such as your mortgage number and contact information.
Verify my mortgage eligibility (Dec 3rd, 2024)Step 4: The Question of Forbearance
Once the lender has received your letter, they might suggest participation in a forbearance program. Such programs can lower or even eliminate mortgage payments for a short period. An example of such a program is the Home Affordable Unemployment Program. Under this program, monthly payments can be reduced so that they do not exceed 31% of your gross income during unemployment. Mortgage payments may even be suspended under the program.
Some well-known lenders such as JP Morgan Chase, Citi Mortgage, and Bank of America are participants of the program. This program is not available to everyone, though, and you must meet the following criteria to qualify:
Verify my mortgage eligibility (Dec 3rd, 2024)- You must reside in the home in question
- You must qualify for unemployment benefits
- You must owe no more than $729,250 on your mortgage
Don't be disheartened if you don't qualify, though. You can ask your lender for other options in such cases and prevent your home from foreclosure due to unemployment.
Step 5: Look into Government Programs or the FHA
In cases where your mortgage was backed by or insured through a government agency, you may be eligible for assistance in cases of unemployment. The following agencies offer such programs:
Verify my mortgage eligibility (Dec 3rd, 2024)- The FHA (Federal Housing Administration)
- Department of Agriculture
- Department of Veterans Affairs
- Fannie Mae
- Freddie Mac
An example of such a program is FHA Home Affordable Modification Program offered by the FHA. This program can provide a "partial claim," which can help you secure an interest-free loan from the U.S. government. The best thing about this loan, apart from the fact that it's interest-free, is that you only have to pay it back when selling the home or when the mortgage expires.
You should get in touch with a mortgage advisor, in any case, to help you going forward.
Step 6: Loan Modification or Short Sale
Verify my mortgage eligibility (Dec 3rd, 2024)If you find that none of the steps above has helped, you can arrange a loan modification with your lender. Such an arrangement modifies the terms of the mortgage to ease your worries in the present. Adjustments can include changing the interest rate, postdated payments by adding them to the total or increasing the length of the mortgage.
If the worst should come to pass and you are forced to relocate and sell your home, you may be able to get out of your mortgage by selling the home at market price. The mortgage will be considered settled even if the value received for the home is less than the mortgage amount. You may even receive relocation assistance if you meet certain criteria.
Step 7: File for Bankruptcy
Verify my mortgage eligibility (Dec 3rd, 2024)Bankruptcy is a scary word, and rightly so. Declaring bankruptcy becomes a black spot on your credit report that can make it hard to secure a loan or even employment at certain places. The worst thing is that it can stay in your record for up to ten years.
If you file for bankruptcy and have a stable income, you may be able to keep your home. The cost is that you will be required to commit a portion of your future income towards your debts under a plan stipulated by the court.
Bankruptcy also forces delays in the foreclosure process. This time can be used to come to an agreement with the lender or search for alternative living arrangements. The decision to file for bankruptcy should never be taken without consultation from an expert.
Verify my mortgage eligibility (Dec 3rd, 2024)No amount of effort may prevent foreclosure. While unfortunate, your journey isn't over yet. You must look into when the proceedings for foreclosure begins as they vary by state. In most cases, they will begin three to six months after you fail to make a payment and arrive at your lender's demand letter.
This is why proactively communicating with your lender is always the best strategy.
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