How to Pay a Mortgage When You're Laid Off

You have several options to protect your home from foreclosure while you are unemployed.

You have several options to protect your home from foreclosure while you are unemployed.

If you are a homeowner who has been laid off from your job, one of your first orders of business is figuring out how to pay your mortgage. The consequences of not paying your mortgage can be severe. One risk is the possibility of a much lower credit score. Another risk -- a much bigger one -- is the possibility that you could lose your home. In some mortgage agreements, a single missed payment constitutes a default and can cause all of the mortgage payments to be accelerated and become due immediately. The bank might also have the right to foreclose on you. Take the time to think through all of your options to ensure you can keep paying your mortgage when you're laid off.

Use Mortgage Insurance

If you have job-loss mortgage insurance, now is the time to use it. This financial product lets the insurance company make your monthly mortgage payment for a certain number of months, based on the policy agreements. It is purchased through an add-on to your home insurance or term life insurance policy. Many job-loss mortgage insurance policies contain a grace period before the insurance company will begin to make payments, so this might not provide an immediate solution for the first few months of unemployment. Check the details of your policy to find out when the payments kick in.

Request a Forbearance

Contact your mortgage lender immediately and explain the situation if you anticipate that you might miss any payments or be late due to your unemployment. If you call before you miss a payment, your lender might not require you to provide documentation of your unemployment. Your lender might also agree to ease your payments through a forbearance plan for a short time while you are unemployed. It all depends on the lender's policies. With a forbearance, you can have your mortgage payment deferred for a few months, or be given the right to submit a partial payment until you find work again. Many forbearance options are only available for three months, however.

Apply for a Loan Modification

A loan modification is a permanent change to one or more terms of your loan agreement to which both you and your lender agree. Loan modifications might involve lowering the interest rate, extending the loan term, adding missed payments to the principle balance or forgiving a portion of the loan debt. In some cases the lender would rather work with you on a modification instead of having to go through the long and expensive process of foreclosure. You might qualify for a loan modification under the federal government's Making Home Affordable Modification Program if you acquired your mortgage before Jan. 1, 2009; it is the first mortgage on your home; your mortgage payment is greater than 31 percent of your gross income; and you have suffered a financial hardship, such as a job loss.

Replace Your Income

If you have been laid off, you might qualify for unemployment benefits. The average amount of weekly benefits is $292. although that amount varies widely depending on your former pay and the state you live in. While this is not much, it might be enough to pay your monthly mortgage payment. Another way to replace your income is to sell off assets so that you can build up a cash reserve. Start with non-essential items you might have, such as a vehicle used for recreational rather than essential purposes. You might have to tap into your savings or retirement accounts even if you face financial penalties for doing so. Look for a part-time or freelance job until you can find another full-time position.


About the Author

Samantha Kemp is a lawyer for a general practice firm. She has been writing professionally since 2009. Her articles focus on legal issues, personal finance, business and education. Kemp acquired her JD from the University of Arkansas School of Law. She also has degrees in economics and business and teaching.

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