Many people are facing foreclosure.
Homeowners who had trouble making payments could easily refinance or unload their home for a big profit. That’s no longer the case. Recently lenders have begun tightening their standards, and if your home hasn’t appreciated, you may not be able to refinance easily.
Here are some strategies you can implement to avoid having your home wreck your finances.
Size up your situation
Is your housing stress the result of a short-term problem that could reverse itself soon, such as a layoff or an illness that triggered health-care costs?
Or does the strain result from a more fundamental problem, such as overoptimism about the real estate market or miscalculation of what you could afford based on your income? The answer will dictate your best strategy (continue reading).
If the stress is temporary
If it’s a temporary crunch, the solution may be as simple as rethinking your spending.
Some common items to cut: health-club memberships, vacations and gift-giving. Got a tax refund this year? Try reducing your withholding so you’ll take home more money in your paycheck each month.
In fact, finding a few extra hundred dollars in your budget can go a long way even if your financial situation isn’t likely to change soon.
If you need a permanent fix
When the problem isn’t temporary and you’ve already trimmed your budget thinner than a slice of prosciutto, you may need to consider more drastic moves.
If you have both a variable-rate home equity line of credit and a primary mortgage, you may save hundreds of dollars a month by refinancing into one new fixed-rate loan that ropes in both balances.
That will quickly offset the cost of the refi, typically a few thousand dollars. You should also consider refinancing if your credit has improved or you simply didn’t get a good deal the first time around.
If you currently have a 15-year mortgage or are more than 10 years into a 30-year loan, stretching out the payments will save you money now, though you’ll pay more interest in the long run.
Ask for a lending hand
If refinancing isn’t a solution and you think you might not be able to make your monthly payment, call your lender immediately and ask about a temporary reduced payment schedule, known as forbearance.
The last thing a lender wants is to foreclose; they run the risk of losing money. Keep in mind that your lender isn’t obliged to give you a break. But you have a good shot if you can prove financial need and have a plan to get back on track. And you’ll avoid a ding on your credit score.
Move on
When no amount of budgeting and strategizing will alleviate your housing stress, it’s time to consider moving on. The good news is that if you have owned your home for several years, you may still be able to sell at a profit.
As a counselor I would say that bad things happen to good people (and this too shall pass!)
Daisy Says: A little knowledge can go a long way.
