What To Do If You Can't Afford Your Mortgage Payment

Nobody goes through the whole process of buying a house if they know they can't really afford their mortgage payments. Multiple steps are in place to safeguard potential homeowners from making that very mistake, and no one thinks it will happen to them — until it does. Let's face it: Life is full of pitfalls and curveballs, and we simply can't dodge them all. If something unexpected but financially devastating happens to you, you have options. But the key lies in being proactive in this situation. If you're wondering what to do if you can't afford your mortgage payment, that's what we're discussing here today.

In order for you to get through this trouble, you're going to need some help. As soon as you know you aren't going to be able to make your next house payment, you should call your lender to explain your situation. It's likely the lender will recommend that you consult with a Department of Housing and Urban Development (HUD)-approved credit counseling agency. You don't want to flush the good credit you gained in order to qualify in the first place down the toilet. Plus, if you ever want to qualify for another home loan again, don't make the mistake of hurting your credit now.

Get a loan modification

According to Forbes, one of your best options is to try to get a loan modification. We're not talking about refinancing but altering the loan to better fit your needs. It's actually a program intended to help homeowners who end up in financial hardship and are at risk of missing payments or have already missed a few payments and are at risk of foreclosure.

A loan modification can involve several different scenarios and can either be a permanent change or a temporary one. The first possibility involves lengthening the terms of your loan so that you can lower the monthly payment amount. Reducing your interest rate is another way to accomplish the same thing. This option is like refinancing but without the fees and closing costs. If you have an adjustable rate, switching to a fixed rate can help your loan become more affordable overall and may be a part of the solution.

Lastly, late payments and fees could be rolled over into the principal, and there's a possibility of extending the loan time. In very rare circumstances, a lender may lower the principal balance. The lender can use one of these remedies (or parts of more than one) to help make the loan more manageable for you. Get in touch with your lender right away if you find yourself in a bad situation. They will tell you your available options.

Ask if you can get a forbearance

If you're experiencing a hardship due to the coronavirus, the Coronavirus Aid, Relief, and Economic Security (CARES) Act entitles anyone with a federally backed mortgage to request up to a year's forbearance. Even if the pandemic isn't to blame, forbearance is another program set up to help homeowners in case of financial hardship, and anyone can request it from their lender. If your mortgage loan is privately backed, you may not have this option.

Basically, forbearance is an agreement you make with the lender to either lower your payments temporarily or put the loan on hold for a period of time (typically no more than one year.) In this case, you'll still owe the payments you missed and the interest on the loan will still accrue, but you can work out exactly when and how to repay it with your lender. If at the end of the forbearance period you still need assistance, you can ask about a loan modification at that time.

Although it will affect your credit unless otherwise agreed upon by the lender, it's far better than missing payments or worse — a foreclosure. You can always reestablish your credit, and it shows you tried to work with your lender rather than avoiding repayment. You will need to qualify for either of these options, so notify the lender sooner, rather than later. Financial hardship can happen to anyone. Being smart about the way you handle it will significantly impact your future.