Keeping your Home Despite a Job Loss
Job loss is a grim specter for a mortgage holder. For most of us, that mortgage payment is at the top of the monthly bill payment list. You can talk almost any creditor into short term relief and even long term restructuring – the phone company, your car loan(s), credit card companies; they deal with delinquent payment plans daily. Mortgage companies get nervous much more quickly, but most are willing to consider at least one skipped payment if your unemployment is for a short period.
You may not remember this in the flurry of documents and signing sessions that accompanied your home purchase, but you may well have an insurance policy that protects your lender against mortgage default. If you have a loan that is more than 80% of the home’s value when purchased, you probably are also paying for mortgage insurance. It’s incorporated into that list of particulars you pay on every month: principal, interest, taxes, homeowner’s insurance – and mortgage insurance. It’s meant to protect the lender; see what protection it provides for you.
Talk to your Lender
It is important to talk to your mortgage lender. Job upheaval is sufficiently commonplace in this country that many mortgage holders have become flexible about restructuring loans, as long as you are prompt in informing them and honest about your job prospects.
A typical restructuring will allow for lesser payments until your income is reestablished, at which point the bank will again restructure to get you back on schedule. Keep in mind that prospective new employers are almost as likely to check your credit rating as prospective lenders.
Before you enter into discussions with your lender on this prospect, decide what you can afford. Don’t be grateful for whatever is offered, and agree to a financing plan that you can’t meet. Tell your lender that your maximum temporary mortgage payment has to be 60% of the norm, not the 75% they are proposing. If you lose the house, it costs them money too.
Bankruptcy – The Poison Pill
The long term answer to keeping your home while unemployed is filing for bankruptcy. The unattractive fallout from exercising this option is known to most of us, although the hard and fast rules have changed somewhat. What used to be seven years of no credit at all has become credit card eligibility after two years. Depending on the circumstances of your bankruptcy, you may be eligible for high risk auto loans and other debt within two to three years after bankruptcy. That assumes, of course, that you have regained employment status and are once again making mortgage payments. Also, bankruptcy has become so common that the Federal Government is on the verge of making it a much less attractive option for consumers.
Near Term Borrowing
With near-term unemployment and an unclear future, many people have put mortgage payments on their credit cards until the limits on those cards are reached. It may blow holes in your credit rating, but it will keep you current on the mortgage and stave off bankruptcy. You can attempt to obtain a home equity loan to fill the hole in your monthly budget, but those are much harder to come by when you’re unemployed. If there are others in the household who are employed, the home equity loan may be a viable option.