What's the best thing to do when you're behind on your mortgage payments and facing foreclosure?
The answer can vary from person to person. There are actually several possible routes you can take -- so it's important to consider all of them before you decide on your next steps. Here are some common alternatives to foreclosure:
1. Talk to your bank about a repayment plan.
If you got behind on your mortgage due to a short-term financial issue (like many government employees recently experienced due to the shutdown), a repayment plan might be your best option. Talk to your lender and work out a plan that will allow you to catch up your mortgage without unduly straining your budget.
2. Consider a mortgage modification.
Again, this can allow you to stay in your home. If your financial crisis is past but you can't catch up your past-due balance, a mortgage modification may reduce your payments and fold the past-due amount into the bulk of your loan.
3. Ask for a forbearance.
If you simply can't afford more than you were already paying per month, your lender may consider giving you a forbearance. Essentially, your payments are suspended for a few months. Those payments usually get tacked onto the end of your mortgage, so you will eventually pay them -- but it gives you the opportunity to get caught up on your past-due amount.
4. Offer a "deed-in-lieu" of foreclosure.
This won't keep you in your home, but it's a viable alternative when you owe more than your home is worth or you have a permanent loss of income and can't keep up your payments. It's also less damaging to your credit than a foreclosure.
5. Try a short-sale.
This is also called a "pre-foreclosure" sale. Basically, the bank has to agree to allow you to sell your home for its current market value when that's less than what you owe. This is a great alternative for people who bought property in a "hot" market that's now gone soft.
It's important to negotiate carefully with your mortgage holder -- especially if you're considering a deed-in-lieu of foreclosure or a short sale. Make sure any agreement you make absolves you of responsibility for the remainder of the debt -- or you could be stuck with that debt after all.