What to do with the house?

Over the last few years, a lot of people have lost their homes. I mean, a LOT. Additionally, economists are concerned that the housing market could take a second dip. As in, more people losing their homes. If you're seriously down on your luck and expect to lose everything but your name, try to keep your car. Nothing flashy - just reliable wheels. Public transportation in the US is terrible, and if push came to shove, an adult could live out of your car. It wouldn't be comfortable . . . and your kids would need to live elsewhere . . . but you'd find ways to survive. On the flipside, you can't drive with your house. See where I'm coming from? BUT - you may not need to lose either one. A lot of us are under-informed as to the work-out plans a mortgage company has for its mortgagees. I worked at a mortgage company for a few years, and here's an overview of options for homeowners.

Your least expensive option would be to make the payments on time every month. If you can add a bit to pay down the principal early, even better. Now - you could try shopping around for less expensive homeowner's insurance. This would lower the escrow portion of your payment (thus lowering the payment overall). Or if you have a conventional mortgage and if you've paid down at least 20% of the loan, you could ask to have the PMI insurance eliminated. PMI isn't homeowner's insurance - it's basically insurance that the mortgagee pays to cover the investors' pooled risk in the loans they've bought into. (Ironically, the investors are often insurance companies, but that's neither here nor there.) Mortgage payments have principal, interest, taxes and insurance. If you can lower any portion of this, you've lowered your payment.

If the payment's still not affordable, selling or refinancing the place is the best way to go. If your payment's been on time for at least six months, the company is often willing to offer refinancing options, no questions asked. There's an upfront fee associated with refinancing, but if you plan to stay there for more than five years, it's generally worth it.

If the payments fell behind but could be brought current, talk with the mortgage company. They're used to hearing from people who'd lost a job, found another one, and now can make their payments. So they often have repayment plans. These plans wouldn't stop late fees or credit reporting, but they're still better than foreclosure or bankruptcy. Focus on bringing the payments current FIRST. The company will want to get the late charges in there, too. What you want is to avoid being charged for this. Outstanding late charges on a mortgage don't incur more late charges and they don't get reported to your credit record so long as you eventually pay them. This is different from a credit card, where any late charges are added to your balance. Remember the four parts of your mortgage payment? Late fees aren't part of it. I'm not suggesting to never pay these fees, but don't make them a part of a repayment plan. Pay them after the loan is current.

Check for assistance with your favorite organizations. Some churches are great about helping members of their congregation who need assistance. There might also be aid available for food, utilities and medical expenses. While this doesn't help your mortgage payment directly, it helps your budget, which in turn can be reworked to help your home. You don't have a budget? Start tracking your expenses - ALL of them - now. Because if you need to use any of these other options I'm about to discuss, the mortgage company is going to need an updated copy of your budget.

Sometimes there are workout options (for a loan in arrears) that will kinda revamp the entire mortgage. It's still not as cheap as keeping the payment current. This would be a deal where the late payments are put into the future payments, making the payment amount go up a bit. Yes, your credit is affected. However this is still better than foreclosure.

Another version of a workout option is a short sale. This is where the house is sold for less than than the current principal balance of the mortgage. However, it leaves a blight on your credit record that's really close to what a foreclosure would look like.

If someone is stuck between foreclosure and bankruptcy, the bankruptcy is often better than a foreclosure. (Surprised? I was too.) Both will leave a bold black mark on your credit for the next seven years. However, someone who files a chapter seven/thirteen combo ends up with their debt ratio in a very good place. Since they can't file again for the next seven years, creditors consider them a pretty safe risk. Now, the bankruptcy laws are changing, or being better enforced. At one point, it was rare for the courts to actually verify the accuracy of a claimant's alleged financial portfolio. At this point, they do. Just make sure you're being honest in your filings.

Between a bankruptcy and a foreclosure, there are also differences in how expensive it is to change your mind and keep the house. With a bankruptcy, all collection efforts stop. The payments continue to come due on their regular cycle, and they'll need to be made current at some point. This often ends up being a case where the person misses seven payments and then on the eighth month, makes all eight payments at once so they can keep the house.

A foreclosure is more expensive to bring the home current. If someone is due for, say, four payments and their home is in foreclosure, they'll have to pay those four payments, plus the late fees, plus the mortgage company's legal fees. The late fees are usually doable, but the legal fees get to be enormous. These are high paid corporate attorneys we're talking about.

If you and your spouse were to part ways, make sure that the home is either deeded over to you or that it's sold. See, a lot of couples will divide assets and in that process, one person (A) gets the house and the other (B) gets other things to balance the value of the house. A quit-claim is filed to absolve B's claim to the property, and they both go their merry ways. It looks good . . . for awhile. What they haven't been told is that even though B isn't on the deed, s/he is still on the mortgage. So if A defaults on the payments, this still damages B's credit record. Collectors will still call them both over late payments, and they have the right to do that. They are both still accountable for the loan, even though B has been taken off the deed. Now, if A decides to refinance, this will get B's name off the loan. However, it's rare that the couple is this amiable by the time the attorneys get done with them.

Actually, if you and your spouse were to decide to part, the divorce could be mediated for less time and money, and it wouldn't be as horrible - for yourselves as well as the children - as dragging each other through court. But that's a different issue altogether.

Hopefully, you'll never need any of this information, but it's better to have information you don't need than it is to need the info and not have it.