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Paying a mortgage after job loss

Paying a Mortgage After Job Loss

It’s the scenario that every homeowner, new and experienced, dreads – a significant loss of income due to layoff or some other change in financial circumstance. Most financial planners advise homeowners to pack away at least six months of expenses in savings, but this money dries up quickly when your family’s income is severely reduced or, more drastically, cut off entirely. So what can you do? Taking some preventative steps before a layoff and making some changes after can help you hang onto your home and hopefully avoid short sale or foreclosure.

Before a Layoff

Before you purchase a home, ask about job-loss mortgage insurance. This is insurance that will cover part of your mortgage payment in the event of an unexpected job loss. It’s available through some banks and lenders, realty groups, and state and local programs. It’s not a fool-proof safety net, however; job-loss mortgage insurance often covers only the PITI (principle, interest, taxes, and insurance) for a limited amount of time. Job-loss mortgage insurance plans differ, and any payments made are considered taxable income.

After a Layoff

But what if you’ve already been laid off? First, take a hard look at your finances. Determine where you can realistically cut costs and calculate how long you can survive without a paycheck. Then, contact your lender’s hardship department with your information in hand. Explain your circumstances and ask if you qualify for a loan modification. Some lenders require that you miss a payment before qualifying, but others are more willing to help you before you fall behind. A foreclosure or a short sale hurts the lender as well, and a smart lender will want to help you avoid these scenarios.

Another option available to some homeowners is mortgage forbearance – a temporary suspension or reduction of mortgage payments. In order to qualify for loan forbearance, you must not have missed any previous payments, and your financial hardship must have an end in sight. Unfortunately, this last requirement often disqualifies the recently unemployed. You may still be eligible for the Home Affordable Unemployment Program, a government program intended to help you keep your home through your period of unemployment. Read more about this program and find out if you are eligible on the Making Home Affordable website.

Other Options

If it makes sense for you financially, start working with a real estate agent to place your home up for sale or lease. Your agent can advise you on the current market conditions and the demand for rentals in your area. With either option, be prepared to go several months without income as you search for the perfect buyer or tenant.

If you find yourself in need of an agent to handle your home sale or rental after a job loss, I can help. Contact Alex Reedy at 717-286-9607.