Retirement is supposed to be the best time of your life, the reward for your decades of hard work. A time to not worry about the things you've been worrying about your whole life, especially money. Unfortunately, many seniors find themselves worrying not just about money but also about avoiding the foreclosure of their largest asset, their home, in their golden years.
While dealing with the prospect of foreclosure is never easy, it can be especially difficult for retired people, the elderly, and those on a fixed income. People plan so that the expenses for the rest of their life can be paid from their Social Security benefits, retirement plan, and savings before they retire. But sometimes there are unexpected expenses that throw everything out of balance and leave a retiree unable to pay their mortgage.
Why Do Retirees End Up In Foreclosure?
Medical bills. Getting sick is not cheap, and most people require more and more visits to the doctor as they get older. It doesn't take long for medical bills to amount to a small fortune. When they do, you can find yourself with more bills than you can afford to pay.
Divorce. Divorce can happen at any time in life and a mortgage payment can be unaffordable when one half of the couple is trying to pay it on their own.
Loss of income. It's common for working homeowners to lose their job and have mortgage problems, but retirees can also lose income. While Social Security and pension benefits are defined, money invested in stocks fluctuates in value every day. For this reason, it's recommended that you move retirement funds in your IRA or 401(k) from potentially volatile stocks into safer bonds as retirement nears. A negative economic event on the other side of the world can push stock prices down when you need to withdraw that money. Retirees who don't plan carefully can lose income they counted on having. Also, even in retirement, many people have part-time jobs, and a person can be let go from their job at any time for any reason.
Expensive home repairs. When you're the owner, there's no landlord to call when something needs fixed. When you need a plumber, roofer, or electrician, you have to pay them out of pocket.
What to do when you can't afford your mortgage
If you've experienced any of the above hardships and can't afford to make your mortgage payment, ask yourself one question: Can you afford to keep your home with a lower mortgage payment?
If the answer is no you should look into a sale, short sale or deed in lieu of foreclosure agreement to get rid of the home. If you do that with a deficiency judgment waiver you can get out with no debt and find yourself a more affordable place to live.
If you want to keep your home and believe that you could afford a lower monthly payment, you should consider a loan modification. A loan modification is a permanent change to your existing loan to make the monthly payment more affordable. Your interest rate can be lowered, the loan term extended, and the principal can be reduced. You can apply for a loan modification after you've been served with foreclosure papers. There is no fee to apply, closing cost, or credit check.
Loan modifications have become more popular in recent years since the recession and crash in home prices of the last decade. Seven million homeowners have been driven into foreclosure so far. The federal government created the Making Home Affordable (MHA) programs to help distressed borrowers avoid foreclosure. The Home Affordable Modification Program (HAMP) is the biggest component of MHA and is a model for many bank's in-house modification programs.
To be eligible for loan modification you will have to prove that you can't afford your mortgage payment as is, but could if it was lower. You need to be in the sweet spot where it looks like you need help but not so much that you're a lost cause.
When the bank tells you they think you're a lost cause without the income to afford your property and that you should sell your home in a short sale, it may just be that you haven't shown them all of your income the way they want to see it. If you have anyone living in your home and paying rent or helping with your bills, that income can be documented even if you don't have a lease agreement or anything official. Any money you're receiving for anything can potentially help your cause.
If you don't have the income, there are ways you can use your home to make money without actually working. You can rent a room to an adult child, grandchild, or friend, or rent out an unused garage space or dock slip.
And there are part-time jobs and unofficial “gigs” that may be enough to get you by, such as dog walking, babysitting, and freelancing. Every little bit helps. Maybe you can take a job long enough to get your loan modification approved and pay down some debt, then quit and get back to enjoying your retirement without the threat of foreclosure hanging over your head.
A loan modification is the only thing standing between many homeowners and foreclosure. But the bank doesn't just give them out like free candy at the teller's counter. They deny most applications that homeowners submit on their own, make mistakes, and often aren't as helpful as they could be. That's why it really pays to have an experienced professional advocating for the best outcome for you.
HAMP and the MHA programs are scheduled to expire at the end of 2016. If you need a loan modification to save your home, apply before it's too late.
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