A Homeowner's Guide
for the Next Recession
Keep Your Home California
Keep Your Home California a federally funded program to help homeowners stay in their homes. This is the government helping you keep your home at their expense. It is often the most beneficial option for financially distressed homeowners because it's free money. There are four programs available to home owners at this time:
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Unemployment Mortgage Assistance- Receive up to $3,000 per month to pay your mortgage as long as you are receiving unemployment benefits. Being unemployed makes you eligible to receive money from the government to pay your mortgage.
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Mortgage Reinstatement Assistance Program - A one-time payment to bring you current on your loan. It covers principal, interest, taxes, and insurance.
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Principal Reduction Program- Up to $100,000 in principal reduction for eligible candidates.
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Transition Assistance Program - One time assistance to move for homeowners after a short sale or died in lieu.
The entire application process will take at least four weeks. You have to meet certain criteria to be eligible for one of their programs. The criteria to qualify is program specific. It is recommended that you entertain this option as it is government money helping you.
The website for the program will provide you with additional information.
A Loan Modification
A Loan Modification, "Loan Mod", will change the terms of your loan to make your payments more affordable and absorb the delinquency balance. Typically, your monthly payments will be reduced by 30-40% with a loan mod. You will still need to make monthly payments to keep your home. The 30-40% you will save is tackled onto the balance of loan in addition to any delinquent amount you may have from before the loan mod. You will eventually have to pay all of this amount back overtime or when you sell your house.
This is an option if you can still make your monthly mortgage payments, but not the whole amount and/or cannot bring your account current. There are a plethora of companies that claim to help you with a loan modification. Many advertise that they can get you free money through a loan modification or promise incredibly generous loan terms. Be vigilant of these and other loan mod scams. Use a government (HUD) approved loan modification agency to start the process. You can find a list of them in California here.
A Forbearance Agreement
Refinance
This entails only making a portion of your regular payment for a set period of time. This is only a temporary solution and does not change the terms of your loan like a loan modification. It is a reduction or suspension of your mortgage payments for a specified period of time. The point of a repayment plan is to give you an opportunity to pay other bills, find a new job, etc. so you can eventually make your mortgage payments again. Once the forbearance period ends, your monthly mortgage payments resume. The amount you did not pay during this grace period will typically be added to your principal balance.
There are similar forbearance programs for student loans. Reach out to your loan servicing program to find out more. Click on of the main loan servicers in California: Nationstar, Chase, Bank of America.
Repayment Plan
This option is an agreement with your lender to pay the delinquent mortgage balance over a specified period of time. It is an arrangement with your loan servicer or lender to “catch up” on your mortgage by allowing you to pay it back over time. It is usually lasts a few months and the balance is added to your regular monthly mortgage payments.
A good option for those who can make their regular payments and want to come current on their balance without going through a loan modification or a foreclosure.
To refinance your mortgage is to essentially replace your existing loan with a new loan that offers better terms. Better terms typically means a lower interest rate on your loan. Consumers usually refinance to either reduce their monthly payment (by reducing their interest rate) or cash in on their home equity. Your credit will need to be decent as well as be current on your monthly mortgage in order to refinance. Some loan modification programs essentially refinance your loan
It is important to shop lenders that can refinance your loan as each will have their own costs , terms and rates. Your credit score will affect the terms of your new loan; the better your credit score will improve the terms of your loan. Start with your current lender and then get quotes from other institutions. Search the government (HUD) website here for a list of approved lenders.
Rent Your Space
Renting part of your house can provide you with the income needed to make your monthly mortgage payments. It is important to note most lenders do not allow you to rent out your entire home. The overwhelming majority of home loans are "owner occupied" loans and require you to live in the house while you are paying it off. If you do decide to rent out your entire residence despite this, then you run the rist of violating the terms of your mortgage, mortgage fraud, and your lender can ask for full payment of the loan. Renting out bedroom is an alternative to your entire residence is less generally less risky.
The proliferation of websites like Airbnb and VBRO have allowed homeowners to rent out their space themselves. Do your homework as there are zoning and HOA laws that may prohib or regulate rentals.
Bankruptcy
Filing for bankrupcty stalls the foreclosure process for months and will allow you to live in your home for a longer period of time without making any payments. Bankrupcty is expensive, damages your credit and creates long term financial problems. This is typically just a short term solution as your mortgage does not get wiped out with a bankruptcy.