Suppose you lose your job, but still have monthly mortgage payments to make. Unfortunately, few people can keep up with their mortgage payments with only unemployment benefits to rely on. Plus, if your benefits run out before you find your next job, the situation is likely to become desperate.
The thought of losing your house would is devastating, but know that there are steps you can take to ensure you don’t default on your loan and risk foreclosure in the event you are unemployed.
Steps to Find Help With Mortgage Payments if Unemployed
Step #1: Review Your Insurance
If you plan in advance, you can insure yourself against suffering through unemployment with various mortgage protection programs offered by insurers. Sometimes home builders even throw in free unemployment insurance to entice you to buy the house from them. Mortgage protection insurance works as follows:
If you lose your job within a specified time after buying the house (typically 2 years), you will be covered for the full amount (as long as it is under the limit) of:
- Mortgage payments
- Home insurance payments
The limit varies depending on your situation, but it is generally in the range of $2,000 to $3,000 per month. Unfortunately, no insurance currently available will cover you for the full life of the mortgage (e.g., 30 years), nor will it cover you in the case of extended unemployment. This means job loss insurance should be considered a short-term solution.
Step #2: Dip into Savings
If you just lost your job, you should immediately take count of all your savings accounts and determine how long you can afford to make mortgage payments before running out of money. Don’t forget to count your severance package, unemployment benefits and any emergency savings you have accumulated.
If you have enough money to last at least 6-8 months, and you feel optimistic about finding a new job, by all means give it a try. Just make sure you move to step 3 with at least 2-3 months to spare before your money runs out.
Step #3: Contact Your Lender
Once you are at a point where you will soon be unable to make any more payments, contact your lender as soon as possible — don’t wait until your mortgage is delinquent! The earlier you start on this step, the better the chance to come out of this on top.
Greg Cook of FirstTimeHomeBuyersNetwork.com says, “Almost all lenders are willing to work with homeowners who have a temporary hardship. The first call — before they
miss a payment — should be to the customer service department of their current lender and see what arrangements can be worked out.”
As long as you reach out to your lender before you have missed any payments, there is a good chance a deal can be struck. Cook advises, “The most commonly used program is forbearance, a deferment of the missed payments for a set period of time. Those payments may either be added to the end of the loan or amortized over a period once the hardship
Step #4: Seek Help from the FHA
If you have become delinquent on your mortgage, seek out programs for homeowners in your situation. For example, certain mortgages qualify for a “partial claim” arrangement with the Federal Housing Administration, which provides you an interest-free loan from the government that covers all your missed payments up to 12 months. This loan does not have to be repaid until you sell the house or pay off the mortgage.
The partial claim arrangement is a great deal, so you should definitely go for it if you qualify. Furthermore, you can continue negotiating with the lender at the same time.
Regardless of which option you choose, it’s best to speak with a mortgage expert and determine the best course of action (and any repercussions) before moving forward.