Owning a home is a major financial commitment, and unexpected challenges — such as job loss, medical emergencies, or economic downturns — can make it difficult to keep up with mortgage payments. If you’re in this situation, know that you’re not alone, and that there are steps you can take to regain financial stability.
Here’s a look at six key strategies to help you navigate this difficult time.
1. Assess Your Financial Situation
The first step in managing mortgage difficulties is to get a clear picture of your financial health. This will help you understand whether your hardship is temporary or long-term and guide your next steps.
- Calculate your income and expenses: List all your sources of income and track your monthly expenses to see where your money is going.
- Prioritize essential payments: Your mortgage should be at the top of your priority list, along with necessary expenses like utilities, food, and insurance.
- Identify areas to cut costs: Look for non-essential expenses (streaming services, dining out, subscriptions) that can be temporarily reduced or eliminated.
- Check your emergency savings: If you have savings set aside, determine how long they can help cover your mortgage and other expenses.
- Evaluate your debt: List all outstanding debts, including credit cards, car loans, and personal loans, to understand the full financial picture.
Assessing your finances allows you to make informed decisions. If the hardship is short-term, small adjustments may help you get back on track. If the situation is more severe, you may need to explore mortgage relief options.
2. Contact Your Lender Immediately
Many homeowners make the mistake of ignoring their lender when they can’t make payments, fearing foreclosure or negative consequences. However, most lenders prefer to work with you rather than go through the costly and time-consuming foreclosure process.
Be honest with your lender about your financial situation. Explain whether your hardship is temporary (such as a job loss with an expected new job) or long-term (such as a permanent reduction in income). You should also ask about options for reducing or deferring payments or request details about available assistance programs.
Possible lender assistance options can include:
- Forbearance: This allows you to temporarily reduce or pause payments while you recover financially. Some lenders allow forbearance for 3 to 12 months.
- Loan modification: This permanently changes the terms of your loan, such as lowering the interest rate, extending the loan term, or even reducing the principal balance.
- Repayment plans: If you’ve missed payments but can afford future ones, the lender may allow you to catch up by adding a portion of past-due payments to your regular payments.
- Refinancing (if applicable): If your credit is still in good standing, refinancing to a lower interest rate or extending the loan term may reduce monthly payments.
Lenders are often willing to work with borrowers who reach out early. Waiting until you’ve missed multiple payments can limit your options and negatively impact your credit score.
3. Explore Government Assistance Programs
Several federal and state programs are designed to help homeowners struggling with mortgage payments. These programs can provide temporary relief, long-term solutions, or even financial assistance.
Key mortgage assistance programs include:
- Homeowner Assistance Fund (HAF): This federal program provides financial relief for homeowners affected by COVID-19 and other hardships. Each state administers its own HAF program.
- Fannie Mae and Freddie Mac hardship programs: If your loan is backed by Fannie Mae or Freddie Mac, you may qualify for payment deferrals or loan modifications.
- FHA-HAMP (Home Affordable Modification Program): For FHA loan holders, this program helps lower monthly payments by extending the loan term or reducing interest rates.
- VA and USDA loan programs: If you have a VA or USDA loan, special assistance programs, such as payment assistance and forbearance options, may be available.
Contact your mortgage servicer to see if your loan qualifies for federal relief programs. You can also visit government housing websites, such as HUD.gov or ConsumerFinance.gov, to find approved programs.
Also check with your state’s housing agency, as many states have their own homeowner assistance programs. Arizona administers AZHAF, the Arizona Homeowner Assistance Fund Plan.
4. Consider Refinancing
If you’re facing long-term financial difficulty but have a good credit score and steady income, refinancing could be a solution to lower your mortgage payments.
Refinancing can help you out in several different ways:
- Lower interest rate: If rates are lower than when you first got your mortgage, refinancing can reduce your monthly payment.
- Extend loan term: Stretching a 15-year mortgage to a 30-year term can significantly lower monthly payments (though it increases total interest paid).
- Convert your loan: If you have an adjustable-rate mortgage (ARM), consider a fixed-rate mortgage. Payments can fluctuate with an ARM, but a fixed-rate mortgage can provide stability.
- Cash-out refinance: If you have equity in your home, refinancing could allow you to access cash to pay off other debts and reduce financial stress.
If you do consider a refinance, you’ll need a good credit score (typically 620 or higher), a low debt-to-income ratio (43% or lower), and equity in your home.
5. Know Your Rights and Avoid Scams
Homeowners facing financial difficulties are often targeted by scammers who promise mortgage relief but end up making things worse. It’s important to know your rights and recognize fraudulent schemes before they take advantage of you.
Common scams for refinancers may face include:
- Upfront fees for loan modifications: Scammers may claim they can modify your loan in exchange for a fee. Legitimate lenders and housing counselors do not charge upfront fees.
- Pressure to sign over your deed: Some scammers offer help but trick homeowners into signing over their property, leaving them without a home.
- Fake government programs: Fraudsters may pose as government agencies or claim they can guarantee mortgage relief through nonexistent programs.
- Offers to “Stop Foreclosure Immediately”: Be wary of anyone who makes bold promises without reviewing your financial situation.
Knowing your rights can prevent you from falling into a worse financial situation due to scams. If you’re ever unsure about an offer, consult a housing counselor or legal expert before taking action.
6. Seek Legal or Housing Counseling Help
If you’re struggling with mortgage payments and unsure of your rights or options, a HUD-approved housing counselor or foreclosure attorney can provide valuable guidance.
You can find approved counselors for free or low-cost assistance at HUD.gov. Also seek out legal aid organizations, state and local housing agencies, or the Consumer Financial Protection Bureau.
Let AZCCU Help With Your Mortgage
Struggling with mortgage payments can be overwhelming, but you have options. By assessing your financial situation, communicating with your lender, exploring assistance programs, considering refinancing, and seeking professional guidance, you can take proactive steps toward financial stability.
Arizona Central Credit Union is here for your mortgage needs, offering refinancing options and calculators to understand your payments. If you have any questions, contact us online or call (866) 264-6421.
