How to Avoid Mortgage Default

Take these steps to deal early and openly with loan troubles.
By: Jim Wasserman
Related To:

Loan trouble may start with one missed mortgage payment, but it can spiral out of control. As bills stack up, how do you cope? Do you stop eating out and drop cable TV? Do you put off car payments to make the house payment? Do you max out credit cards and exhaust the savings account? Before you know it, you’re facing bankruptcy and foreclosure.

How you deal with impending loan trouble goes a long way to ending it in the best way possible. Let your lender know about your situation early. Banks prefer working with you as opposed to taking back the house, which almost always represents a loss for the lender.

If you’re facing mortgage trouble, take these steps:

  • Get moving on a solution, or get help before it's too late. Many people burrow their head in the sand and wait until they've missed two or three payments to start working out a plan.
  • Write a hardship letter to your lender, putting your situation in writing. Be specific about what caused the delinquency, with dates and a time frame. Make it detailed, but be concise.
  • Be polite and work with the lender to find a solution you both agree on. This may be extending the repayment period, suspending the need for payments for a few months, borrowing from family members or tacking the missed payments onto the back end of the loan.
  • Don't give up and walk away from your house before trying to find some kind of solution. And don't assume a short sale -- a process by which the bank agrees to sell your home for less than you owe -- is your only way out.
  • Don’t expect to be automatically approved for a short sale, which usually requires involuntary hardship, such as a lost job, bankruptcy, divorce, death, medical crisis, relocation or some other legitimate difficulty. In these cases, banks typically ask for two years of tax returns, pay stubs and bank statements, the divorce decree, the bankruptcy filing, or letters from doctors.
  • Foreclosure is a last resort. It stays on a credit record for seven years, and it may be four years before a buyer can use regular interest rates again. Missing up to three mortgage payments also stays on a record for seven years.

Next Up

How Not to Pay Mortgage Broker Commissions

Read about the insider secret to avoid paying mortgage commissions.

Home Pricing Mistakes and How to Avoid Them

Sell your home fast by steering clear of these common pricing blunders.

Things to Show Mortgage Lenders

Discover details about the personal, employment and financial information your mortgage broker will request.

Alternatives to the Traditional Mortgage

Figure out if you should sign on or steer clear of these financing trends.

I Can't Afford to Pay My Mortgage

Your mortgage is too high, but you don't want to lose money on your home by selling. What's a homeowner to do? Real estate expert Tara-Nicholle Nelson has the solutions.

10 Ways to Avoid Internet Moving Scams

If you're looking for an inexpensive moving company on the Internet, you'd better do your homework first, or your furniture won't be the only thing that gets taken for a ride. These ten tips will help you avoid moving scams.

How to Deduct Points From a Refinanced Mortgage or Loan for a Second Home

Some of the best perks of owning a home are the tax breaks. Know what expenses you can deduct, and understand how new laws affect you. If you're currently renting, consider the tax advantages of homeownership. This may be the time to buy a home.

What to Do If You Can't Afford Your Mortgage

If you're having trouble paying your mortgage, remember there are options before you concede your home.

What to Do When Your Mortgage Rate is Adjusted

There's no need to panic when your mortgage rate is adjusted. Here's why.

What to Do When You Lose Your Job and Can’t Pay the Mortgage

How one family weathered the storm with the help of real estate expert Tara-Nicholle Nelson.

Go Shopping

Refresh your home with stylish products handpicked by HGTV editors.

On TV

Home Town

7am | 6c

Home Town

8am | 7c

Home Town

9am | 8c

Home Town

10am | 9c

Home Town

11am | 10c

Home Town

12pm | 11c

Home Town

1pm | 12c

Home Town

2pm | 1c

Home Town

3pm | 2c

Home Town

4pm | 3c

Home Town

5pm | 4c

Home Town

6pm | 5c

Home Town

7pm | 6c
On Tonight
On Tonight

Home Town Takeover

8pm | 7c

Home Town

9pm | 8c

Home Town

10pm | 9c

Home Town

11pm | 10c

Home Town

1am | 12c

Home Town

2am | 1c

Home Town

3am | 2c

Home Town

4am | 3c

Home Town

5am | 4c

Follow Us Everywhere

Join the party! Don't miss HGTV in your favorite social media feeds.

Related Pages