The decision to purchase a home is one of the most significant financial decisions facing prospective homebuyers. There are multiple factors involved in the process, including determining an affordable monthly mortgage payment amount, how to save and secure funds for down payment, and what features a homebuyer considers a priority for their home. For families with children additional concerns are involved such as a town or city’s school system, crime rate, affordability levels, and proximity to family-centered entertainment venues.
The costs associated with becoming a homeowner are substantial and extend beyond the monthly mortgage payment. Unfortunately, in today’s current economic climate it is becoming increasingly difficult for homeowners to continue making timely mortgage payments. Homeowners struggling to remain current on their mortgage are risking not only their good credit history, but as the process progresses, they are faced with the possibility of facing foreclosure. There are a number of steps homeowners can take to try and rectify the situation before the financial institution begins the lengthy foreclosure process. For more in-depth analysis and opinion, go to We Know Money for mortgage advice.
1. Create a Household Budget
Knowing how much income is coming into a household, compared with the amount spent on fixed and variable monthly expenses, is critical to creating a solid financial foundation. A complete budget will include categories with fixed payments such as mortgage or rent, car loan, student loan, and credit card balances. It is also helpful to average bills that may vary depending on the month such as utilities, transportation costs, and groceries. Discretionary income, especially during times of financial stress should be minimised and includes entertainment, eating out, gifts, and shopping.
2. Minimise Discretionary Spending
Individuals and families unable to make their monthly mortgage payment need to limit or eliminate discretionary spending. This can be difficult to follow through with, especially for those already grappling with a tight budget, but it is essential to carefully scrutinise every purchase of non-necessities during this period.
3. Contact the Mortgage Company
Homeowners may be surprised by the willingness of some lenders to negotiate with borrowers who are experiencing temporary financial difficulties. A homeowner can request if they will accept a partial payment, waive the late fee, or not report the late payment to credit bureaus. It is essential not to avoid communication with the financial institution and it may, in fact, complicate the situation. The majority of lenders will try to contact a borrower once the grace period has passed and a payment is 30 or more days late. Records of late payments will negatively impact a person’s credit score and this can affect future lending options.
4. Seek Opportunities to Increase Income
During a time when unemployment is at historically high levels, it can seem daunting to find part-time employment opportunities to supplement income. However, homeowners can use this time to be creative and consider what skills they can apply in a potential position. Spouses may choose to work in the evening or on weekends part-time, or stay-at-home mothers may consider providing childcare out of their house.
5. Save on Everyday Necessities
Groceries and gas represent two areas where households spend a large portion of their earned income. These areas are also an easy way to reduce spending. In order to limit the money spent on gas, individuals can combine errands into a single trip or utilise public transportation if it exists. Grocery spending can be cut through eliminating pre-packaged snack foods, convenience foods, choosing store brands over major manufacturers, and cooking from scratch.
6. Sell the Home
If a homeowner realises that their financially precarious situation is likely to be long-term, it may be best to consider selling the property. It is prudent to make a decision to sell prior to becoming significantly late on the loan, in order to retain a good FICO score and not encounter difficulties with finding new housing due to poor credit.