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Can’t Pay Your Mortgage? Here Are Some Solutions.

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You’re in trouble and you can’t pay your mortgage, you need solutions. Read more for detailed strategies you can follow to fix your debt and keep your home.

Look, I understand, things happened that you didn’t plan for and now you’re in trouble.  Money is tight and you can’t pay your mortgage.  This is a serious problem as you and your family need a place to live!  While foreclosure does take awhile and you can pretty much live in your home rent free during that period, the time after foreclosure is a nightmare.

Foreclosure destroys your credit rating making it near impossible to find a decent place to buy or rent.  More importantly, foreclosure is a scenario where the only party who gets anything worth talking about is the bank.

It is also not unheard of for employers to run a credit check before they hire you.  Being in debt is a disease and it affects every area of someone’s life.

Enough morbid stuff, most of us know how bad things can get so we’re going to try and avoid foreclosure at all costs.  Here are some solutions to help you pay your mortgage and keep your home.

Tap Into Your Existing Equity

Chances are you didn’t just buy your home yesterday because if you did, the bank would have been crazy to give a financially stressed person a mortgage.

Since you didn’t *just* get your mortgage, it’s safe to assume that you’ve made a few mortgage payments already.  From the first payment you made, you started building equity in your home – initially to the tune of roughly 30% a payment.  You also put in a down payment in order to get the home.

Depending on when you bought the home, you may still have equity.  Jump over to Zillow.com and find your home.  There are tons of fancy graphs and estimations on the value of your home there so be sure to do your research.  The main question you want to ask is how does the size of your mortgage compare to the value of your home.

If the difference between your mortgage and the value of your home is greater than 10%, you’re in luck!  You can stop reading this article and go get a Home Equity Loan!

Lower Your Payment and Refinance Your Mortgage

Have you heard how low rates are now?  Getting a mortgage for the first time is a great idea right now and it’s an equally good idea for someone to refinance to a lower interest rate.

Quicken Loans has some killer deals on refinancing and they’ll even let you refinance up to 97% of the homes value.  While normally I would say you should aim to have at least 10% equity at all times, when you’re in a pinch for money it’s best you take care of debt before it takes care of you.

Not only is refinancing a great idea but you can also refinance at a longer term.  Say you have 15 years left on your mortgage, you can always refinance back to a 30 year term and make it easier for you to handle your monthly payments.  Yes you will pay more in interest over the long term but again, it’s better to stay afloat and do what needs to be done then to drown.

If you both refinance to a lower rate and reset your term to 30 years, you could stand to significantly reduce your monthly payments.  The key being that if you reduce your monthly payments, you’re much more likely to be able to make them in full and on time.

Refinance Your Other Debt

Sometimes when you can’t pay your mortgage it isn’t because your mortgage payment is too high in relation to your income but you are being strangled by other debt.  The evil credit card company type of debt.  What can we do about this?  We can refinance this debt too!

First let me just answer why you would want to refinance your debt.  Say you’re in a really tight situation and you’re trying to over pay your minimum credit card payments but you’re not getting anywhere.  The reason is because of your interest rate.

Credit card interest rates are way high, especially for people with poor credit.  We’re talking an average of 18% for a normal person these days and the best you might ever get with perfect credit would be around 12% (still terrible).  When you refinance your debt you reduce the snowball effect of compound interest allowing you get off your credit limit wall and free up some capital to take care of business.

I need to set some ground rules for you though.  You may only take out this type of loan if you intend to improve your debt’s interest rate, not if you just want to pile on more debt.  Adding more debt is a terrible decision and will only get you into more trouble.

That said, if you are ready to refinance your debt, you have a few options.  First, you can go with a company like Trusted Payday which will pretty much give you an instant no credit check loan probably within the hour.  Remember though, this is just a tactical fix until you can get out from your mountain of debt.

Your next and probably best option because of their competitive rate market is Prosper.com.  Prosper.com works a little differently in that normal people like you or me buy the debt of other people as opposed to banks taking on the debt.  This makes the rates a lot more competitive for the borrower, there is a lot less paperwork and you have a higher chance of getting a loan.

The reason you have a higher chance of getting a loan with Prosper.com is that an individual investor may be willing to take on more risk than a bank.  As such, you could be in a pretty terrible situation but someone may still be interested in giving you a loan.

There is also a near 100% chance that this loan will have a more attractive interest rate as compared to a credit card.  There is nothing worse than putting your debt on a credit card!

Call Upon Your 401k For Help

Not everybody has one but if you do, you’ve got a great option here.  There are two ways to do this, the good way and the painful way.

The good way is where you can access up to 50% of your 401k funds to get yourself out of sticky situations like when you can’t pay your mortgage.  There is no tax penalty and you can pay the loan back over a term specified by you.

When you pay back your 401k, you’re technically paying back yourself and all the interest that you pay on this loan also goes back to you.  The only downside here is that you don’t get investment gains on the money during the time you are borrowing it.  Generally speaking that’s fine though as long as your gains are not significantly higher than the interest rate you owe to your 401k company.

In a way this is like a free bailout/forced savings tactic since you will wind up with more in your 401k at the end then when you started.  You will slowly pay back the 401k over time in much the same way you contributed to it in the first place, garnished out of your pay with tax benefits.  Pretty good deal!

The bad way (but still a feasible way) is to withdraw from your 401k.  The extent to which this is bad is determined by how much money you have in there, how long it’s been in there, how much growth has occured, and your tax bracket.

Basically withdrawing from your 401k is a taxable event where a large portion goes to the government (because your 401k was previously untaxed).  You also lose some if not all of your gains when you go this route.  That sucks.  Don’t do this unless you really need to.  It is of course preferable to taking on more debt though.

Just note that if you are borrowing against your 401k, you should be very concerned with reducing your 401k fees.  With a loan and high fees, you’re basically just giving your savings away where with reduced fees you at least have a fighting chance.

Sign Up For eBay

Tough times call for drastic measures.  You know all that stuff you acquired that put you in this terrible mess in the first place?  It’s time to cash in on it to fix your financial situation.

You would be surprised how much you can get for used or even broken stuff on eBay.  Everybody wants a good deal (eBay is global) and not everybody needs a complete working product.  See, some people go to eBay just for parts.  You know all those iPhone repair services?  They get a lot of their parts on eBay from broken iPhones ;)

If you’re in debt and about to get kicked out of your house, honestly you don’t deserve that fancy couch or that leather jacket.  You have bigger problems than looking cool with your expensive sun glasses or designer hand bag.  Sell your stuff, pay down that debt (and your mortgage) and save yourself.

If you let your stuff rule you, you’ll sink.  You’ll be homeless, nobody will lend to you and you’ll be the laughing stock of your non materialistic friends.  Selling your expensive crap is a small price to pay to keep your life from falling apart.

Reduce Your Credit Card Interest Rates

What doesn’t really get discussed is that it’s in everyones best interest that you pay down your debt.  The credit card companies or mortgage companies make money off your interest but if you declare bankruptcy or are foreclosed on, they get stuck with the bill.  They know this so they are more than willing to negotiate with you to help you keep your finances under control.

If you have the time and patience, you can contact each of your credit card providers and talk with them about reducing your rate so that you don’t have to declare bankruptcy (even if it is a bluff).  You will absolutely get some traction here but you’ve really got to be a skilled negotiator to get the maximum rate (and possibly balance) reduction.

Alternatively you can go with a company that specializes in reducing your remaining balance and your interest rate.  One of the most popular companies in this area is Freedom Debt Relief.  These guys will go to bat for you and seriously cut your debt to pieces.

Under the threat of losing everything, you would be surprised how much credit card companies will be willing to play ball.  In fact, you would be crazy not to apply online now and see how far you get.  Credit card companies pay for these losses with the interest payments of suckers who just keep paying.  Don’t be one of those people, take advantage of the credit card companies like they’ve been doing to you!

Easy Life Style Cutbacks

Last but certainly not least, we need to discuss your spending.  You should be budgeting, looking for ways to save money every day and focusing on stopping blatantly wasteful spending.

Beyond that you need to make some tough decisions.  Do you need a cell phone data plan?  Is HBO really helping you solve your problems or is it more expensive than it’s worth?  Can’t you just watch football at your friends house instead of paying for it too (he’ll understand, you’re in a tough spot)?

The point is, you’re not going to get to the finish line following your current strategy.  For whatever reason, you’re having money problems and the hard truth is that you need to start taking real, meaningful steps towards fixing it.  Life style cut backs should really be on the top of the list only if I put it first, you probably wouldn’t have read this far.  Sorry, the truth hurts.

Sure, things may be bad now but you can fix it.  Get out there, smash debt, keep your house and when you’re done please come back here and brag about it ;)

If you’ve had success with any of the methods we’ve discussed or have any new ideas please leave a comment!

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  • I have seen quite a few people get loans from prosper and lending club. Those solutions are actually a good way to invest as well. Nice tips Andrew.

    • Yea, and even the worst rates these places can offer are much better than the rates you would get on a credit card. Thanks for the comment Grayson!

  • Excellent tips. The one I have been kicking around in my head is the borrowing from my 401k. Please tell me if I misread what you had. If I borrow money from my 401k, I have a 403b, I can pay back through a garnishment instead of mailing in checks or bill pay through my bank. Plus, the garnishment is a pre-tax deduction too. That last part has me very intrigued if I read this correctly.

    • Thanks Alan!

      To answer your question, yes your 401k repayments will be automatically garnished out of your pay. The amount and the term are decided by you (with some upper limits on term).

      The garnishments for your 401k repayments aren’t pretax unfortunately but you will still get to collect the investment gains on that money under your retirement tax bracket which theoretically should be much lower than it is now.

      One thing I did forget to mention though is that you can’t switch jobs until you pay back your 401k loan. If you do, you must either repay the loan in full immediately or suffer a penalty for a partial withdrawal.

  • Getting to the point where you can’t pay your mortgage is a bad situation to be in. For myself, my mortgage would be that very last thing that would be “not paid”, my primary daily driver being a close second. It’s interesting but not widely advertised that credit card companies will negotiate your debt for a payoff. If done right, you can get an agreement from them not to hit your credit report as well!

  • My problem is the bank won’t let me refi because I don’t have a “job.” They need to see a paycheck. My mortgage would drop by $500 a month if I went out and got a job. Being self-employed won’t do.

    Got any suggestions on how I can get around this?

    • Matt, there is both a nice easy answer and some not so convenient truths that you’ll have to come to terms with.

      First the good news, you can absolutely get a mortgage and it’s as easy as showing your previous tax returns. You used to be able to provide your “stated income” or pay stub like people with full time jobs in big corporations but it was abused so much before the 2008 crash that unfortunately conveniences like this were ruined for the rest of us.

      Now for the bad news, likely the way you run your business to optimize your tax returns is going to come back to bite you. Usually what we small business owners do is write off everything such that we can reduce our net income to the smallest number possible. For example, if you earn $100,000 and write off $100,000 in expenses it’s a huge win for your tax bill. However, when others namely banks look at this return it appears exactly as you crafted it, that you made a net zero dollars for the year. Who in the right mind would lend someone money when they effectively make zero dollars?

      If this is the case for you, your best bet is to compare the costs. If you amend a return and possibly pay the government X, will your savings on your mortgage be greater than what you pay the government? Of course it’s not always so simple, especially with the simple tax code our country has. You may be better off consulting with your local CPA to help you find the “least painful” option. Remember, it’s not that you can’t refinance your mortgage, the question is “At what cost?”

  • Aw, this was an incredibly nice post. Taking the time and actual effort to create a very
    good article… but what can I say… I put things off a lot and never manage to get anything done.