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Published: Nov 11, 2021 11 min read
Illustration of moths flying out of an open purse in the shape of a house
Kiersten Essenpreis for Money

If you’ve recently fallen behind on mortgage payments, or are on the brink of missing your next payment, you’re not alone. Since March 2020, millions of Americans have had to temporarily pause or reduce their mortgage payments, reports the Mortgage Bankers Association.

If you’re facing financial hardship, there are several state and federal mortgage assistance options for avoiding foreclosure, including mortgage forbearance for certain types of loans.

Here’s what you can do to get back on track with your monthly mortgage payments.

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Where to start if you can't pay your mortgage

If you've recently fallen behind on mortgage payments or are about to, consider the following:

Contact your lender

As the saying goes, the early bird gets the worm. If you’re facing economic difficulties, your monthly mortgage payment is past due or you're worried you won't make your next installment, contact your mortgage servicer right away.

In addition to collecting your monthly mortgage payment, a mortgage servicer may be able to help struggling homeowners avoid further delinquencies. The earlier you look for help, the more mortgage assistance options you’ll have access to.

By requesting mortgage relief early or before you’ve missed a payment, you may be able to develop a tailored plan of action with your mortgage servicer. For instance, you may be eligible for mortgage forbearance or a loan modification.

However, if you’ve already been served with foreclosure papers, your mortgage relief options will be limited.

Your mortgage servicer’s contact details are often included in your monthly mortgage statement. You can also access your loan servicer’s contact information on its website.

Also keep in mind that while the due date for your monthly mortgage payment is probably on the first of each month, you have until the fifteenth to make a payment without being charged late fees, according to the Department of Housing and Urban Development (HUD).

Your loan won't go into default until you are over 30 days late in making payments, in which case there may be additional fees.

Be prepared to provide the following information

Your mortgage lender or loan servicer will likely inquire into the following to determine which mortgage assistance programs are available to you:

  • The reason for your financial hardship

You may not be able to afford your current mortgage payments for a number of reasons.

Examples of financial hardship may include:

  • Loss of income or reduced income due to job loss, reduced hours or death
  • Natural disaster
  • Illness or disability
  • Divorce or separation
  • Pandemic (COVID-19)

Lenders will often request proof of hardship in order to narrow down the relief programs available for you.

  • If the financial setback is temporary or permanent

Let your lender know whether you're facing a long- or short-term financial setback.

For example, if you lost your job due to the coronavirus pandemic but you expect to be able to find a new one quickly, you may be a candidate for mortgage forbearance. If the situation that hinders your ability to make payments is permanent, however, you may be a better candidate for a loan modification.

  • Your current income or assets

Be prepared to provide bank statements, pay stubs and proof of available assets. This can help your lender narrow down your repayment options.

  • If you’re a member of the military

If you’re a service member that has permanent change of station (PCS) orders, you may qualify for loss mitigation options.

Military members also qualify for VA-backed mortgage refinance options that may help them overcome financial hardship.

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Request housing counseling from a HUD-approved agency

In addition to your mortgage servicer, there are government agencies that can provide counsel for free.

The Department of Housing and Urban Development (HUD), can connect you with a HUD-approved housing counselor who can give you expert assistance to avoid foreclosure.

Additionally, you can contact HUD-approved counselors in your area through the Consumer Financial Protection Bureau's “Find a Counselor” tool or by calling the HOPE Hotline, open 24/7, at (888) 995-HOPE (4673).

If you’re facing foreclosure or have been served with legal proceedings such as a pre-foreclosure, consult an attorney.

What options are available?

If you’re experiencing financial hardship, there are several options to help you get financial relief.

Once you contact your mortgage servicer, you may be referred to your lender’s loss mitigation team, which will help you avoid foreclosure if you are in default or at risk of missing your next mortgage payment.

Here are some common relief options most banks can offer:

Ask for mortgage forbearance

Mortgage forbearance is a repayment relief program designed for individuals who need to temporarily suspend or reduce loan payments due to financial hardship.

With a forbearance, your mortgage servicer will pause or reduce your mortgage payments for an agreed period of time. Once the forbearance ends, you’ll have to repay the amount that was reduced or temporarily suspended.

While you can repay the missed amount in a lump sum, there are other repayment options available depending on you lender. For example, you can schedule a repayment plan, tack on the missed amount toward the end of your loan through a payment deferral or set up loan modification.

Forbearance options will vary depending on the type of loan you have, whether it's privately-owned or government-backed. For example, the CARES Act was a federal relief plan that included mortgages owned by Freddie Mac, Fannie Mae, VA, USDA and HUD/FHA.

If, for example, you’ve fallen behind on your mortgage due to unemployment or reduced hours but anticipate returning to work soon, a forbearance plan may be right for you.

Modify your loan

A loan modification can be a temporary or permanent adjustment to the terms of your mortgage loan. This includes lowering your interest rate, extending your loan term, switching from an adjustable- to a fixed-rate mortgage or all of the above.

Unlike a mortgage refinance, a loan modification doesn’t replace your existing mortgage with a new one. Instead, it directly changes the conditions of your existing mortgage.

Homeowners that are about to exit a forbearance plan can request a loan modification if they still need help to get back on their feet. Financial relief programs vary by lender, so ask whether your lender offers loan modifications.

Negotiate a repayment plan

If you're ready to pay back your missed mortgage payments, you can negotiate a repayment plan with your mortgage servicer. Most mortgage lenders offer several repayment plan options.

One option is paying an additional amount on top of your current mortgage payment for an agreed-upon period of time until your account is current. Should you have the means to do so, you can cover the outstanding balance with a lump sum payment.

If you need some additional time to recoup financially, you may be able to request a payment deferral, where your mortgage servicer tacks on your missed payments to the end of your loan.

Refinance your home

With a mortgage refinance, you’re replacing an existing mortgage with a new one ideally with a lower interest rate and monthly payment. A refinance will give you a new principal, interest rate and mortgage terms. Refinancing can also help you add or remove a cosigner on your mortgage agreement.

That being said, a mortgage refinance may not be for everyone, especially if interest rates are high. For one, if your income or credit are lower than when you took out your original mortgage you may not qualify for a better interest rate. You may not qualify for a mortgage refinance if you’ve recently lost your job or are experiencing financial hardship.

If you’re wondering whether now is a good time for a mortgage refinance, check out Money’s mortgage refinance checklist to determine whether it’s the right move for you.

You can also use our mortgage refinance calculator to help you determine if the potential savings are worth your while.

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Short-sell the house

If you can no longer afford your mortgage payments and there are no relief programs available to you, you may consider initiating a short sale with your lender.

A short sale occurs when you sell your property for less of the amount owed on the mortgage. Once the property is sold, your lender may be willing to forgive your owed balance.

A short sale isn’t a decision to take lightly since you’ll be giving up your home, but it can be preferable to foreclosure. While you won’t get any direct earnings from the short sale, you’ll save on the costly legal fees and related expenses of foreclosure.

According to the three main credit bureaus (Equifax, TransUnion and Experian) a short sale may appear on your credit report as “not paid as agreed.” This implies that your lender received less than the full loan amount and can stay on your credit report for up to 7 years.

To go forward with a short sale, you must provide evidence of financial hardship. Short sales are generally approved if you have an underwater mortgage, meaning you owe more than what the property is worth.

Return ownership to the lender through a “Deed-in-lieu of foreclosure”

A deed-in-lieu of foreclosure allows you to avoid foreclosure by voluntarily giving up ownership of your home to the lender.

According to the CFPB, it’s recommended that you seek out a HUD-approved housing counselor if you choose to move forward with this option, as they can help you navigate next steps.


What does pre-foreclosure mean?


A pre-foreclosure is a legal notice that your lender has begun foreclosure proceedings. Your mortgage servicer will issue a pre-foreclosure if you've defaulted on your mortgage, which means missing three or more mortgage payments.

Although you may have limited mortgage relief options available to you during a pre-foreclosure phase, you should contact your lender. You may be able to negotiate a loan modification or a short sale during this time.

When does mortgage forbearance end?


If your loan is backed by HUD/FHA, VA, USDA, and you have a COVID-related financial hardship that impedes your ability to make mortgage payments, you can still request a mortgage forbearance for as long as the COVID-19 National Emergency is in place.

For Fannie Mae or Freddie Mac-backed loans, it is no longer possible to apply for mortgage forbearance. However, you can apply for an extension if you received your initial forbearance on or before February 28, 2021 and have not hit the maximum forbearance period of 18 months.

Mortgages backed by HUD, FHA, VA or USDA can also request an additional three-month extension, for a maximum of 18 months forbearance. However, you must have received your initial forbearance on or before June 30, 2020.

If your forbearance period is ending, contact your mortgage servicer to come up with a repayment plan you're comfortable with.

What is the HIRO mortgage relief program?


The high-LTV refinance option (HIRO) is a mortgage refinance program for homeowners with Fannie Mae loans. It allows borrowers to refinance a property with a loan-to-value (LTV) ratio that exceeds the maximum allowed under a standard cash-out refi program.

Generally, standard mortgage cash-out refinance programs allow you to borrow up to 80% of your home's value. This is also known as your LTV ratio maximum, which indicates how much of your home's value is being cashed out.

The maximum LTV ratio will vary from lender to lender. For example, VA-backed loans don't follow the 80% rule and qualifying borrowers can cash-out up to the full amount of their existing equity.

What is the HARP mortgage program?


The Home Affordability Refinance Program (HARP), allows homeowners with little or no equity in their homes to refinance their mortgage. The HARP program was introduced in 2009 and ended in 2018, however, it has since been replaced by new federal mortgage refinance options.

Some popular refinance options include Fannie Mae's HIRO and the Freddie Mac Enhanced Relief Refinance Mortgage program, which enables refinancing of Freddie Mac-held loans with LTV ratios up to 95%.

What are some mortgage refinance options for veterans?


If you have a VA loan, the VA home loan program allows qualified homeowners to reduce their monthly payments and lower their interest rate through a VA Streamline Refinance, also known as an Interest Rate Reduction Refinance Loan (IRRL).

Whether you have a VA or conventional loan, a VA-backed cash-out refinance can help you tap into your home equity to cover debts, emergencies or home improvements.

The bottom line

  • There are resources available to help homeowners overcome financial difficulties concerning mortgage payments and avoid a loss.
  • Contact your mortgage servicer right away. Your lender can offer housing counsel to help you with mortgage payment difficulties.
  • You can also contact MakingHomeAffordable.gov, which provides access to HUD-approved housing counseling agencies and community organizations that can assist you.
  • You can also follow USA.gov as an educational resource. The federal government’s website provides current information related to mortgage forbearance for homeowners affected by COVID-19.