Homeowners

You Don’t Have to Lose Your Home After a Job Loss. Here’s What to Do

Lately, the news has unfortunately been filled with layoff announcements from high-profile companies. For homeowners who lose their jobs, the loss of a steady income is more than just emotionally overwhelming. It can be financially destabilizing.

Missing even one mortgage payment can harm your credit score. Prolonged delinquency can put you on a path toward foreclosure or a forced sale. But with communication and planning, you may be able to protect both your home and your credit.

Many lenders and mortgage servicers may be able to offer some temporary relief, but only if you inform them of the hardships you’re facing.

“It can be stressful. People are ashamed of their situations,” said Chelsea Krahn, a New American Funding supervisor for loan servicing audits. “We’re very empathetic to everyone’s situation. We’ll take that into full consideration and see what the best [assistance] option is.”

Contact your mortgage servicer

Your very first call (ideally before you miss a payment) should be to your mortgage servicer. This is the company you send your mortgage payment to each month, which may or may not be your lender.

Often, they have assistance programs that are designed to help borrowers facing hardship.

“We do urge everybody to call in right away,” Krahn said. “Depending on how long-term they think their hardship [will be,] we’ll ask a series of questions.”

This includes whether you plan on staying in or selling the home.

Responding honestly about your financial situation is key.

“[Make] sure that you’re giving us all of the correct information and not providing information that you think will change the outcome,” she said.

Different relief options may require documentation to prove hardship. Common programs include:

Mortgage forbearance

Mortgage forbearance temporarily pauses or reduces your mortgage payments, generally for three months to more than a year. Many servicers will offer this option for homeowners who lose their job.

Some servicers require a lump-sum payment once the forbearance ends, while others may offer a repayment plan that spreads out the missed amount over several months. You may also be able to add missed payments to the end of your loan, extending the payoff date.

The specifics depend on your situation as well as what sort of assistance is available through your servicer.

Home loan modifications

Loan modifications permanently change the terms of your mortgage to make it more manageable in response to long-term hardship.

You may first need to successfully make payments that approximate the new monthly amount during a trial period, Krahn noted. Loan modification options may include:

• Lowering your mortgage interest rate
• Shifting from an adjustable-rate loan to a fixed-rate mortgage
• Extending the loan term to lower monthly payments
• Reducing the principal balance owed

If you’re approved for forbearance or a loan modification, it’s important to understand what information your servicer reports to the credit bureaus and that your payment status is being shared correctly.

This can protect your credit score from being affected by what is hopefully only a temporary financial blip.

Mortgage repayment plans

If you’ve missed one or two payments, your servicer may offer a structured repayment plan. This helps you to catch up with a higher temporary monthly payment, which will go back down once you’re caught up.

This can be a good option for homeowners who have faced a temporary hardship that has since been resolved. Often these repayment plans can be up to six months.

“We do have different assistance options for repayment plans based on income,” Krahn said.

Mortgage reinstatement

Mortgage reinstatement allows you to pay the total amount you owe by a specific date, in one lump payment.

This may be preferable for homeowners trying to avoid foreclosure who know they will have funds available at a future date.

Explore mortgage refinancing

If mortgage interest rates are lower than when you took out your mortgage (and if your credit is still strong) you may be able to refinance your mortgage to reduce your monthly payments.

However, refinancing generally requires stable income and solid credit, so it may not be an option if you’re deep into unemployment. You should also be fairly confident that you will stay in your home for at least a few more years, as refinancing requires upfront fees.

If possible, explore this path early, especially if you anticipate a longer job search.

Evaluate if selling your home makes sense after a job loss

If you’ve been struggling financially for a while, or if you suspect your loss of income will be long-term, it may be worth evaluating whether staying in your home is the best option.

Many homeowners today have near-record levels of home equity, thanks to years of rising prices. Selling your home could allow you to:

• Pay off the mortgage in full and avoid foreclosure or a short sale, both of which negatively impact your credit score
• Potentially walk away with a profit and reset your financial situation

If you decide to sell, working with a real estate professional may help you navigate your local market conditions and secure the highest possible price.

“The first thing we advise before a short sale is just a straight sale,” Krahn said.