I am unemployed and can't afford my mortgage, what can I do?

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Question:

I’m a single woman who has been out of work for three months and can’t afford my mortgage payments anymore. I hate to sell my house, but what are my choices?

Answer:

You have a few options before putting your home up for sale. These basically assume that you’re in a short-term cash crunch and that it is highly likely you will be employed again in the near future.

 

  • Refinance your house. This essentially means you take out a new mortgage. Qualifying to do so may be tough if you don’t have much equity in your house (especially if you have heavy debts or a bad credit history). But if you do qualify, a refinance can help reduce your monthly payments by lowering your interest rate and starting a new loan term (meaning you’ll have more time to pay back your loan, so your monthly payments should be less). The downside is that you’ll pay upfront fees to refinance, and you’ll pay more interest over the life of the loan. On the bright side, if refinancing will help you stay put in the short term, it may be worth it. See the Nolo article Refinancing Your Mortgage in Today’s Market for more on the subject.
  • Negotiate your loan with the lender. If you have real trouble paying your mortgage, your lender may agree to a repayment plan to help you catch up on missed payments, a modification to your current loan that will make it possible for you to stay put, or a forbearance to reduce or eliminate payments for a period of time, until you’re back on your feet.
  • Borrow money from family or friends. If you’re confident that you’ll be gainfully employed soon, see if you can take a loan from a relative or friend to tide you over. If someone you’re close to can afford to loan you mortgage money (and is willing to do so), this may be a reasonable choice. But be sure this type of loan makes sense financially (and emotionally, in terms of your personal relationship) before you ask for mortgage help. Approach the loan like a business proposition, and offer to borrow money at a fair rate of interest, secured by a promissory note. For more on the subject, see the Nolo articles Borrowing From Family and Friends to Buy a Home, and Promissory Notes for Personal Loans to Family or Friends on the topic.
  • Bring in a roommate or two. If you really want to stay in your home, getting a few friends (or friends of friends) to move in and help pay the mortgage can be a viable option. Consider doing a short-term lease, or a month-to-month rental agreement to tide you over for a few months. Who knows—you may end up even liking the arrangement! See Living With Roommates in the Tenants section of this site for useful articles.
  • Rent out your house and get a less expensive rental. As a last resort, consider renting out your house if you think the rent will cover the mortgage, plus subsidize rent you’ll need to pay on a less expensive apartment. Be sure the numbers make sense before going this route. And remember, there’s lots involved with being a landlord, from choosing tenants who will pay rent on time and keep the rental in good shape, to following all your state (and often local) rules for making repairs,  handling security deposits, and more. Also, if you live in a condominium or other property in a common interest development, check if your CC&Rs allow you to rent your unit. See the Landlords & Rental Property section of this site for a range of articles on being a landlord. For in-depth advice, see the Nolo book First-Time Landlord, by Janet Portman, Ilona Bray, and Marcia Stewart. 
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