If you find yourself saying "I can't afford my house anymore," when looking at your mortgage bill, you may be at risk for foreclosure, meaning the lender would ultimately seize or auction your home. There are, however, some alternatives before you lose your house. You may be able to negotiate a better payment plan with your lender or even refinance your home at a better rate. You might also be able to take advantage of assistance programs where you live.
TL;DR (Too Long; Didn't Read)
If you can't pay the mortgage, you may be at risk of losing your home, so it's a situation to take seriously. Consider working with the lender, refinancing your home and finding assistance programs to help you.
Understanding Mortgages and Foreclosure
When you take out a loan to buy a home, your lender will normally put a mortgage on the property, giving it a right to the house if you don't pay back the loan according to your agreement. This mortgage and other related documents are filed with your local property records office, and the mortgage will be formally removed from the property if the loan is fully paid back.
When You Can't Pay the Mortgage
If you start to miss payments, the lender will likely notify you that you are at risk of losing the home. That's because the lender has the right to start a process called foreclosure, which will usually ends in the lender taking possession of the home or auctioning the home off to satisfy the rest of the loan.
You will then usually have to leave the house by a certain date or have your property removed by local officials. Failing to make payments as your loan requires and having a foreclosure on your record can negatively impact your credit rating.
While You're Buying Your Home
If you are in the midst of taking out a mortgage and realize you can't afford it, you will probably want to do what you can to get out of it. Where you are in the loan final approval and closing timeline will affect whether you owe any penalties for changing your mind. Some fees may not be refundable.
Therefore, it's a good idea to let your lender, your real estate broker and the home seller know as soon as possible that you don't want to go through with the purchase. You can work with a lawyer for help if you're not sure if any penalties are owed and want to minimize your legal exposure.
Details of the Foreclosure Process
Exactly how long the foreclosure process takes and what's entailed varies from state to state. In some states, lenders must take you to court and get a judge to approve the foreclosure. You can hire your own lawyer to represent you through this process.
Other states, especially those that technically use a document called a deed of trust instead of a mortgage, don't require court approval for a foreclosure. Instead, it can be handled by a third-party agent called a trustee. The effect, though, is the same.
How many payments you can miss and how long you have to make back payments also varies from state to state.
Refinancing or Negotiating Your Mortgage
If you can't pay the mortgage, you may be able to negotiate with the lender for more leeway, especially if it's only a temporary issue. Contact the lender and explain your issue as soon as possible and see if any programs are available to allow you to make reduced payments that you can afford to avoid losing your house.
If you can, also consider refinancing your home, meaning that you will take out a new mortgage at a lower rate to pay off the older one. Make sure you do the math to verify the new loan will be affordable, even after closing costs and other incidental costs.
Mortgage Assistance Programs
You may qualify for mortgage assistance programs through your lender or various government agencies, such as the Housing Finance Agencies' mortgage assistance program. Look to see what's available to you or call around to local agencies for more options.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.