When you are buying your first home, or when you are moving to a different one, you are usually focused on affording the down payment and finding the right financing. Once this is done and you have your house, you might breathe a sigh of relief and think that the worst is dealt with. It’s true that the first part is over, but there are other financial responsibilities that a homeowner must be able to provide for. Knowing how to properly manage your home mortgage is a crucial part of buying a house, and this involves everything from making loan payments to paying routine repair costs and such.
Prepare a Budget
The first thing you should do is create a home budget, not just for utility and mortgage bills, but also for potential repairs and remodeling. When the electricity, plumbing, or heating goes down these mechanical failures should be fixed immediately. If you have purchased a newer home your budget should be safe with just light landscaping and minor repairs. But if you buy an older home then you should budget out more money for repairs and replacement of things like the roof, the hot water heater, and the air conditioning system. View your budget as a type of emergency fund for repairs. You should also look into the other financing options, such as home equity loans and installment loans, if you think you’ll need outside assistance.
Expect the Unexpected
While setting aside funds for repairs and bills is a smart idea, you also have to consider scenarios that exist outside of the house itself. Many people are unable to afford their mortgage, and thus lose their house, due to unfortunate circumstances like having marital problems, falling extremely ill, or losing their job. None of us plan for these problems, but the future is full of uncertainty. The only thing you can do is plan for “just in case” and have alternative backup plans ready. If you fall on hard times there are options like small loans, churches and nonprofits, and special assistance housing agencies that might be able to provide you with the temporary relief you need to get back on your feet.
Dealing with Delinquency
Your monthly mortgage payment is due on the same day of every month. If the mortgage lender receives the payment after the due date then it is considered late. Different lenders deal with this in different ways, but for all of them you will have to pay an overdue fee if the payment is late for a certain number of days (usually from one to fifteen). If you pay the overdue amount plus the charges then you will be ok. But if you haven’t paid by the time the next month’s due date rolls around, you will be putting your home at risk. Usually when three or more payment periods have come and gone without any repayment on your part then the loan becomes delinquent. This means that the lender’s attorney will start the foreclosure proceedings and you may lose everything if you do not pay the mortgage in full (plus any legal fees incurred by the lender).
What Happens When You Default
When you get behind on your payments and the loan becomes delinquent, it is known as defaulting on your mortgage. Oftentimes having to default leads to foreclosure. Foreclosing is terrible for you, but it’s not so great for the loan lender either. The lender can’t make as much money selling a foreclosed home, and thus they are usually willing to work with you on a personalized mortgage repayment plan. It mainly depends on how good or bad your past payment record is and how reliable they see you as. If you know you are not going to be able to make the mortgage payments at their current amount, you can make the first move. Create a disclosure package containing things like your tax returns, proof of income, additional debts and payment plans, and any assets and liabilities and present this to your lender. Then ask if there is any kind of arrangement the two of you can make that will bring the loan current.
Options for Mortgage Workout Plans
Depending on your lender, you may have a few different workout plan alternatives when you are unable to make payments on your mortgage. The plan will have a written agreement and specific deadlines you must meet in order to avoid foreclosure. If your financial dilemma is only a short-term issue (two to three months), then you may be able to receive a temporary indulgence from the lender. If your dilemma is long-term or you have lost your source of income, then you might be eligible for a repayment plan. This plan will have you paying the monthly amount plus a little bit extra to cure the delinquency and will usually last no longer than one to two years. In extreme cases, when you cannot make any sort of payment for a period of time, you may be granted a forbearance period. This suspension of payment is highly dependent on your record with the lender and defaulting on the agreement will lead to immediate foreclosure action.