Q: I was wondering if mortgage lenders would help adjust or refinance loans even if the borrower hasn’t missed any payments.
We have two monthly mortgage payments totaling $2,100. For the past year, I’ve been a stay-at-home mom and of course have no paycheck coming in. While we haven’t missed a mortgage payment or even been late paying, we often have to dip into savings to cover the monthly bills. And we’ve cut back about as much as we can. Because our main loan is an interest-only loan, we have very little equity in our home; therefore, I don’t think we can refinance.
If I call the lenders and explain the financial hardship we’re in, do you think they’d be willing to work with me, even though I haven’t missed payments?
A: First thing, you need to do a written budget. I know this sounds so simple, but you have to see exactly why you are falling short every month. You’ll find a monthly spending plan worksheet here (pdf).
Perhaps there are still things you still need to cut. For example, with kids, you may not want to eliminate cable altogether, but you can get down to a basic package. Or, got cell phones? Reduce the plan to the smallest minute package. I’m amazed that families struggling to make mortgage payments still have $100 to $200 cell phone bills. That’s just ridiculous.
Now, if you have cut until it hurts—and I mean really hurts—then you don’t have an expense problem, you have an income problem. I’ll get to the mortgage issue in just a bit, but you have to deal with this first, because it may be that no amount of refinancing is going to allow you to stay in your home if your husband isn’t bringing home enough income to afford the lifestyle you’ve created for your family.
Definitely call your lender. With so many homeowners in trouble, they know the deal. They know they let families like yours get loans they now can’t afford. With your family’s situation, you should never have gotten an interest-only loan. But you know that now, of course. Explain your situation and see if the lender can work out a deal. You may be able to get a loan modification which wouldn’t require you to do a refinance.
Aim for a fixed-rate interest loan and, with your budget done, you’ll know exactly how much you can afford each month for housing. By the way, you should not be spending more than 36% of your net income on housing.
Next, you need to contact a housing counselor. The Housing and Urban Development Department (HUD) has a list of agencies that can help you negotiate with your lender. Click here to find out more about HUD-approved housing counseling agencies. You can also call toll free (800) 569-4287 on weekdays between 9 a.m. and 5 p.m. ET (6 a.m. to 2 p.m. PT).
Many of these agencies are connected with national and regional housing counseling intermediaries (mediators), which provide services through branches and affiliates. HUD’s National and Regional Housing Counseling Intermediaries Webpage has a list that can be viewed by state.