Handling Mortgage Payment Problems

Homeowners sometimes have trouble paying their mortgages. Due to high property values, some first time homebuyers purchase homes priced too high for their budget. There are new home loan programs to help these buyers qualify for a home. Nonetheless, payment shock caused by new expenses can negatively impact finances.

First time homebuyers are not alone. Mortgage payment problems also affect veteran homeowners. Many factors contribute to mortgage problems. Some problems can be resolved within a few months, whereas other problems can have long term consequences, which make is difficult for homeowners to bounce back.

Temporary Payment Problems - Short term payment problems are common during times of employment loss or illness. Once the homeowner secures new employment, or their health improves, the ability to submit regular mortgage payments returns.

If the borrower is unable to make payments, the mortgage company may grant a temporary forbearance for a period of 3 to 6 months. During this time, mortgage payments are not requested; however, interest will continue to accrue. This option is beneficial because the homeowner avoids foreclosure, and the lender avoids the high cost of a foreclosure proceeding.

Permanent Payment Problems - Long term or permanent financial problems may indefinitely affect a homeowner's ability to repay their mortgage. Even though mortgage companies are prepared to negotiate special repayment plans, these plans come with certain limitations. If a homeowner does not foresee future changes in their finances, the risk of foreclosure is high. Fortunately, measures can be taken to avoid a foreclosure proceeding.

- Mortgage Assumption - This option allows a qualified borrower to buy the home and assume the mortgage loan, which relinquishes the current owner of all obligations to repay the loan. Assumable loans are appealing to persons who cannot meet a bank's loan requirements. Furthermore, if mortgage rates continue to rise, buyers who take advantage of a mortgage assumption may be able to benefit from low rates.

Today, buyers interested in assuming a mortgage loan must meet the lender's loan requirements. Additionally, the buyer is often responsible for paying an assumption fee, credit report fee, processing fee, and closing fee.

- Short Sale -Previously expensive housing markets may suffer a slight decline in home prices. Borrowers who desperately need to sell their homes to avoid foreclosure may owe more than the home's worth. If the borrower is unable to sell the property for the full loan balance, mortgage lenders may permit a "short sale." This real estate transaction allows the borrower to sell the home at market value. The lender accepts smaller proceeds and seeks no further payment from the buyer.

Deed in Lieu of Foreclosure - Some mortgage loan agreements allows the borrower to transfer the property title to the mortgage company, in exchange for a debt discharge. In order for a "deed in lieu of foreclosure" to happen, the borrower and lender must negotiate and agree on specific terms. The process must be voluntary on the borrower's part. For this matter, rarely will a mortgage lender encourage a deed in lieu of foreclosure. This way, the lender avoids any claims of pressuring the borrower into accepting this option. This alternative is only available to borrowers who meet specific requirements. To qualify: