If you or someone you know is struggling to make mortgage payments, the best thing you can do is not ignore the problem. It will not go away. There are many options and resources to help, and the sooner you act the more options you will have.

Gather your financial documents and bills

This is the most difficult step for many people. You will need a clear and realistic picture of your household finances to know what step to take next. For many options, you will have to provide financial information to your current lender or a new one, so it best to start there and get organized. Some of the documentation that you will need to look at is last 3 or 4 paycheck stubs, last 2 years tax returns, current balance and past due amount on your mortgage, other household bills including all credit cards, car loans, personal loans, utilities, living expenses and any other additional sources of income or debt. Use a sheet of paper to write down every cent that comes into the household and every cent that leaves to see if there are any areas that you can eliminate or reduce spending. Use this information to determine the maximum mortgage payment you can afford.

Start making phone calls

The U.S. Department of Housing and Urban Development (HUD) in conjunction with major U.S. banks and mortgage companies set up a hotline to assist homeowners with finding workout solutions without foreclosure. The toll-free number is (888) 995-HOPE.  You should also contact your mortgage company, letting them know that you are having trouble making your payments.

Try to get a workout

Most mortgage companies now are trying very hard to work out a payment that homeowners can afford so they do not have to foreclose. Many will fix an adjustable interest rate, lower or eliminate interest for a period of time, temporarily suspend or reduce payments or extend the term of the loan to permanently reduce payments. Don’t necessarily accept the first offer the bank gives you if it is not realistic for your family’s situation. Be prepared to negotiate with the bank if necessary, however the bank will expect you to pay the maximum amount you can afford.

Refinance

If you have some equity in the property and your credit is good, you may be able to refinance into a lower interest rate or longer term to reduce your payments if your current lender will not work out an affordable solution with you. Use extreme caution with this option. Refinancing into another payment you cannot afford will not solve the situation and could even make it worse. Read everything very carefully and analyze the rate, fees, payments and term to be sure you can afford the new loan and you understand how much it will cost.

Put the house on the market

If you can’t get a workout you can afford, refinance or know that you won’t be able to continue making payments long-term, consult a real estate agent to put the house on the market. They will do a comparative market analysis (CMA) to get an idea of how much your house is worth. If you have equity (i.e., the house is worth more than your loans), this is a relatively easy solution. If you owe more than your house is worth, you can try a short sale. A short sale happens when your lender accepts less than what you owe to facilitate a sale versus foreclosing on the property. The motivation for the bank to do this is because it costs them less than it would to foreclose on the property. The short sale process will take a long time (weeks or months) so be patient and be prepared for many ups and downs in the process. Be honest with your agent about the situation so they can provide you with the best real estate advice and services for your situation. You should also consult with a real estate attorney and a CPA to determine if there are any legal or tax consequences to doing a short sale.

With all of these options, do not sign anything you do not understand. If you don’t understand, call a qualified and reputable professional (lawyer, CPA, etc) to advise you of potential risks and repercussions, even if it means you have to pay for their services. Be careful of solutions that sound too good to be true or “foreclosure rescue” companies. Many are scams and can make things worse rather than help.

The information in this article is for information purposes only and deemed reliable but not guaranteed.  This information may not apply to your circumstances or area and is not intended to constitute legal, tax or other professional advice.