Feeling overwhelmed by your mortgage payment? It may be that the total cost of homeownership—from your house payments to utilities to insurance costs—wasn’t quite clear to you before you took the plunge. Or perhaps you suffered a job loss or an unexpected family medical emergency. No matter the reason, falling behind on your mortgage payments is always a scary prospect.
So, what do you do when you just can’t make ends meet? Before doing something drastic, like skipping out on your loan payments, consider getting some help. There are plenty of government mortgage assistance programs that can help you get back on your feet. Let’s take a look.
- Mortgage assistance programs can help make your existing mortgage more affordable.
- There are many types of programs, including loan modifications, refinancing, and principal reduction.
- Each state also offers assistance programs to eligible borrowers.
- If all else fails, consider checking out local charities or putting your home up for sale.
Determining When You Need Mortgage Assistance
Understanding when you need help may be difficult. Let’s say you lost your job in 2020. Thanks to government stimulus programs, you were able to keep up with your mortgage payments over the last year. However, some of those programs have ended and you’re still unemployed. Your savings are dwindling fast, and finding another job doesn’t seem likely in the immediate short term.
Once you realize you’ll have difficulty making your mortgage payments, act quickly. Generally speaking, banks report late payments once they exceed the 30-day mark, and that can cause a big hit to your credit score.
But even more frightening than damaging your credit is the prospect of losing your house. Since a mortgage is a type of secured debt, your property will be at risk of foreclosure if you fail to keep up with your payments. Although legally, banks aren’t able to foreclose on your home unless you’re at least 120 days delinquent, you’ll still want to move as quickly as possible to prevent it.
Loan Modification Programs
Loan modification is exactly as it sounds—the process of modifying, or changing, your current loan. This can mean altering the terms or length of your loan in order to make your payments more affordable. While loan modification can help better manage your loan payments, be aware that changing the terms may also mean you’ll pay more in interest, especially if you significantly extend the life of your loan.
There are several types of loan modification programs available depending on what type of loan you have, your personal financial situation, and your lender.
- USDA, VA, and FHA: These federally backed loans may be eligible for loan modifications under President Biden’s July 2021 mortgage relief program announced, which aims to reduce principal and interest payments by as much as 30% to eligible homeowners.
- Fannie Mae or Freddie Mac: If your loan is backed by one of these lenders, you can take advantage of the Flex Modification Program, which can also lower monthly payments.
If you’re interested in a loan modification, be sure to read up on your available options based on your eligibility, lender, and loan type.
Principal Reduction Programs
The Home Affordable Modification Program (HAMP), created as a result of the mortgage crisis in the early 2000s, allowed distressed homeowners to permanently reduce the principal of their mortgages.
Although this program has ended, the Flex Modification program mentioned above can still reduce your loan payments by up to 20% by adjusting your interest rate, loan term, and the forbearance of a portion of unpaid principal.
Streamline Refinance Your Government-Backed Loan
You’ve probably heard of refinancing, which is the act of securing a second mortgage to pay off your first. There are plenty of reasons for this, including changing your rate terms or rate length.
Streamline refinances are available for government-backed loans. Unlike typical refinances, streamlined refinances require limited credit documentation and underwriting, which may make them easier to achieve. Be aware that your loan must be current in order to qualify for a streamline refinance.
Other Refinance Options
Even if you don’t have a mortgage that’s eligible for a streamline refinance, you may still have options when it comes to refinancing after the pandemic.
In April 2021, the Federal Housing Finance Agency announced a new program that allows low-income families with Fannie Mae or Freddie Mac properties to reduce their payments by as much as $250 per month. They’ll need to meet eligibility requirements for this:
- Owner-occupy a single-family home
- Have not missed a payment in the past six months, and no more than one missed payment in the past 12 months
- Have an income at or below 80% of the area’s median income
- Have a FICO score greater than 620
- Have a loan-to-value ratio of 97% or less
- Hold a maximum debt-to-income ratio of 65%
Depending on where you live, you may also have access to state-backed assistance programs. New funding provided by the federal government is allowing state programs to fund relief efforts, such as New York's Homeowner Assistance Program, which is designed to provide grants up to $50,000 to eligible homeowners so that they may make missed mortgage payments.
In order to find programs for your own state, visit the National Council of State Housing Agencies website.
Other Ways To Get Help With Your Mortgage
If none of these programs are suitable, you may want to consider other, non-government options for mortgage assistance. Research charities and churches in your area to see if they’re able to offer financial aid. Otherwise, consider whether selling your home may be a viable option.
Frequently Asked Questions (FAQs)
How do I apply for mortgage assistance?
There are a variety of different ways to apply for mortgage assistance. Depending on what program you’re applying for, you’ll need to meet eligibility requirements and fill out the necessary paperwork.
How does mortgage assistance affect taxes?
You won’t include payments received from mortgage assistance funds as income, but you will need to calculate how much mortgage interest you’ve actually paid when completing your taxes.