What to do if You Can’t Pay Your Mortgage

This post may contain affiliate links. Please read my disclosure for more information.

If you’ve lost your income and can’t pay your mortgage I’ve got five ways you can lower or pause your mortgage payments to get back on your feet.

If you’re a subscriber, thanks so much for watching. Be sure to like this video if this is what you want more of.  If you’re not a subscriber, click to the subscribe and you’ll get more videos every week helping you save money and spend smarter.

Your mortgage is likely your biggest expense but it’s not as essential as putting food on the table and keeping your lights on. If you can’t make your mortgage payment and meet basic needs at the same time then finding a way to lower or pause your payment is a high priority.

Before We Begin

Know before going in that it may take a while to get someone on the phone. Loan servicers are experiencing a high call volume and their workforce may also be impacted by the pandemic. There are a few other important things to also consider:

Get everything in writing

Whatever option you go with, ask your servicer to provide written documentation that confirms the details of your agreement. This will protect you should you find unauthorized changes in the agreement and make sure you understand what you’re signing up for.

And continue to pay attention to your monthly mortgage statement and credit report to make sure you don’t see any errors or unauthorized changes.

Watch out for scams

Be wary of any emails you receive promising financial relief and don’t click any links in suspicious emails or on websites without an SSL certificate. 

Don’t answer phone numbers you don’t know or give information to anyone who calls you. Remember how I said lenders are busy right now? Unless someone specifically said they were going to call you, a call from an unknown number offering you assistance is most likely fraudulent.

And don’t pay upfront fees or work with an intermediary. And NEVER EVER surrender the deed to your house (or zoo. Joe Exotic can tell you that.) If it sounds too good to be true, it is.

Five Options to Help When You Can’t Pay Your Mortgage

Now here are five ways you can pause or lower your payment when you’re having trouble paying your mortgage.

1. Verify Your Lender & Mortgage Type

Your lender and the type of mortgage you have are going to make a big impact on the options available to you. 63% of all mortgages are federally backed and will be eligible for more forbearance than private mortgages.

Federally backed mortgages include:

• Conventional loans serviced by Fannie Mae and Freddie Mac.
• The Federal Housing Administration insures FHA loans.
• The Department of Veterans Affairs guarantees VA loans.
• The Department of Agriculture guarantees USDA loans

While the government guarantees these loans they don’t service them so you’re also going to have to verify who your lender is because that’s who you’re going to be calling to get assistance.

2. Request Forbearance

Requesting for forbearance isn’t ideal. It should never be number 1 on any list unless its a list of things to avoid followed by number 2, people. But here we are and this is for people who can’t pay their mortgage.

During forbearance, your mortgage won’t incur late fees and foreclosure and other legal proceedings will be suspended.

Interest will still accrue during forbearance. At the end of the forbearance, you can pay all of your missed payments at one time, spread out over a period of months, or added as additional payments or a lump sum at the end of your mortgage.

The best option is to spread out the amount due over six to 12 months. Borrowers with federally-backed loans will not be forced to make up all their payments at once, also known as a balloon payment.

When you call to request forbearance, have your account number ready. Homeowners with federally backed mortgages simply need to say that you have a “pandemic-related financial hardship.”

3. Consider Refinancing

If your credit score and financial history are strong, look into the options you have for refinancing. Rates are super low right now so you could lower your monthly payment and save some money. And you can roll your closing costs into the loan so you’re not out any money right now.

Lots of people have already tried this so the wait times at many of the large banks and loan servicers are long but many small banks and credit unions still are can close within a few months.

I know this because we applied and got a rate lock from our local credit union in mid-April. It’s important to know that refinances are taking extra long to process right now, no matter where you go. We got a rate lock in April but were told it’d be June before we could close so it’s not a quick process right now.

If you can’t pay your mortgage right now you’re still going to want to request forbearance first. Most servicers aren’t reporting forbearance to the credit bureaus right now so it shouldn’t affect your credit or rate. 

However, if you’re reading this down the road you’re going to want to apply and get your rate lock before you request forbearance because normally they do report that and it will affect your rate.

Last thing, if you need to you can also cash out the equity in your home through a refinance it can give you a cash buffer if you really need it.

4. Look into a Loan Modification

After forbearance, if you can’t pay the lump sum of payments or afford the payment spread over the next year, you’ll want to consider a loan modification. But you can do this without forbearance and possibly even get a lower interest rate.

With a loan modification, you and your lender agree to new terms for your existing mortgage without refinancing. This might include lowering the interest rate, lengthening the term of the loan, or adding any late payments to the amount you already owe.

A loan modification may hurt your credit score but not as badly as a foreclosure. With any of these modifications, the goal is to avoid foreclosure and, hopefully, make your monthly payment more affordable.

5. Talk to a Housing Counselor

The Department of Housing and Urban Development (HUD) certifies trained professional housing counselors that can discuss options with you if you’re having trouble paying your mortgage. 

This may include forbearance or a modified payment program but they also can explain documents, help you make a budget, and tell you about local resources that may not be covered widely. You can find one near you on the Consumer Finance website.

No One is Going to Pay Your Mortgage for you

So take the steps you need to, before it’s too late, to protect your home and your family.