Credit Report Q&A

Suffocating from my mortgage – a few suggestions to help.

Dear myFICO,

My adjustable-rate loan will reset in a few months and I think I may have gotten in over my head with my mortgage. What options do I have to help me get control of this situation and what are their implications on my credit standing?

Anthony
Jacksonville, Florida

Dear Anthony,

You’re not the only homeowner in a tough spot; 7 trillion dollars in home loans will reset within the coming year. If rates don't go way down, this major reset will leave many homeowners in big trouble. I was lucky enough to have a conversation with Mike Ahr, a loan officer with BWC Mortgage Services to get a better understanding of the current housing situation and the options available to homeowners in your predicament.

Mike explained that getting a home loan for the last couple of years was way too easy. People who shouldn't have qualified for loans were finding many lenders willing to work with them. Unfortunately, in many cases, those loose lending practices were setting people up to fail by making it too easy for borrowers to get into homes they couldn't afford. Many homeowners are now feeling the pinch of dealing with a mortgage that just costs too much – or will once their rate resets.

So, what can you do about your rising mortgage payments without ruining your credit? First, continue to make all of your monthly mortgage payments on time – even if you have to borrow money to make these payments. Your mortgage lender will be more willing to work with you if your mortgage is in good standing, and missing payments is a sure fire way to hurt your credit standing.

Second, call your mortgage lender and tell them your situation and that you'd like to work something out so you don't have to default on your loan. Of course, your lender would prefer that you just continue to pay your mortgage as agreed, but they stand to lose money if you default on your loan. Figure out how much you can afford to pay towards your mortgage each month and try to work with your lender to get your monthly payments close to that number. This free calculator can help you determine your monthly payments for different loan amounts. You might also send a letter stating your desire to work out an agreement so that you have documented proof that you tried to work with your lender to come up with a plan to make good on your mortgage.

Lastly, don't give up! Even if you know your mortgage payments are going to leave you in a tough spot, you can start thinking about your options now. If you find that you simply bought too much house, then your only option might be to sell your home and find a more affordable one. This may sound like a bad option, but if you cannot make your mortgage payments, you could stand to lose your home due to foreclosure. It's better to sell your home on your terms and not the bank's!

Hopefully you can work something out with your lender that allows you to keep your home. The fact that you've identified the problem before it's gotten out of hand will allow you to figure out your options and understand which one works best for your circumstances. Mark Ahr has agreed to provide his email (mahr@bwcmtg.com) if you'd like to speak to a certified loan officer about your situation. We wish you all the best.

Sincerely,
myFICO Team

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