I’m Caught, Now What?

So, you’ve realized you ‘re caught in the housing bubble. You’re probably thinking, “Now what do I do?” If you’re caught in the housing bubble because you lost your job or have experienced a significant decrease in pay (maybe a paycut or forced un-paid vacation), please read the following post: “I Just Lost My Job, Now What?” I have a special set of instructions for you! Otherwise, read on.

Step #1 – Create or update your monthly budget

If you haven’t done this already, you must. A financial worksheet is going to be your tool to help you determine where you stand financially. In addition, your lender is going to need a copy of your financial worksheet in order to work with you. Before you pick up the phone to call your lender, make sure your worksheet is done. To get a copy of a financial worksheet for free, be sure to sign up for my newsletter and I’ll automatically send you a copy!

Step #2 – Determine your overall goal based on your financial worksheet

How far off is your monthly income from your monthly expenses? Are you in the red? Can you afford your home if you hunkered down, reduced your spending and received a reasonable reduction in your mortgage payment? If so, you most likely will want to pursue a loan modification with your lender(s). Remember that most lenders offer short term loan modifications by temporarily reducing your interest rate (3 – 5 years), thereby reducing your monthly payment for that length of time. I personally have not heard of any lenders currently offering principal reductions as part of a loan modification. But, it doesn’t hurt to ask. If you are seeking a loan modification please, please please do not fall victim to the scams that are out there promising principal reductions or guaranteed loan modifications for an upfront fee. You can work with your lender directly to obtain a loan modification. It may take some bulldogged persistance, but you can negotiate directly with your lender yourself.  For more on pursuing a loan modification see “Do It Yourself Loan Modifications.”

Step #3- Know your options

If you realize you can’t afford your mortgage by cutting back your expenses and by getting a reduction in your monthly payment, you have the following options:

• Short Sale: a negotiated settlement in which your lender(s) agree to accept a payoff less than what is owed to them on the secured Note.
• Deed-In-Lieu of foreclosure: a process where the borrower deeds the collateral (the property) to the lender and thereby avoids foreclosure.
• Foreclosure: a legal process in which your lender repossess the property after it falls in default.

Step #4 – Call your lender

If you simply cannot afford your mortgage no matter the cuts you make, you need to pick up the phone and call your lender to discuss your alternative solutions. Most likely, your lender will recommend a short sale. This is by far the best option to pursue rather than a Deed-in-Lieu and Foreclosure. However, all three options have credit and legal consequences so be sure to contact your qualified professionals for specific advice. Your lender will usually do a phone qualification where they verbally run through your situation and your financial worksheet. That’s why it’s important to have it done before you talk to the lender so you can give an accurate accounting. From there, they will review your options and give instructions to you on what documentation they will need. For specifics on the short sale process, click here.

What you’re going through is not easy. It’s quite stressful and many of my clients have told me that it feels like a monkey on their back. However, they all say that once they took control of the situation, contacted their lender and set out on a course of action (whether it’s a loan modification or short sale) they all felt much more positive about their future and they could finally move on. It also helps to have the assistance of a team of professionals to assist you. If you’d like a free consultation with a highly qualified Realtor make sure to contact my team through our Contact Us page. Even if you aren’t located in the State of CA, we can still connect you through our extensive referral network. We look forward to assisting you!

I Lost My Job, Now What?

You thought you were secure and prepared to dig in and ride out the economic downturn. Then, the unthinkable happens; you get laid-off or receive a notice that your company is downsizing and your position has been eliminated. Ahh! Take a breath, don’t panic! You’ll need your wits about you to act quickly to save you and your family from a financial disaster. It could get worse? Oh yes! Losing your job or being laid off is just the start. If you don’t make some quick changes,this loss of income will affect you for a long time to come.

What to do?

First, sit down an update your budget. Yes, I talk a lot about budgeting and mention it all the time. It’s so important to have pre-set spending limits. But most importantly, you need to reconcile your budget against your actual spending habits. With the invention of the debit card, a lot of us have gotten away from balancing the old checkbook register. Time to get with the program! A really helpful tool to help you track your spending is www.mint.com. This is a fabulous online resource (they even have an app for the iphone to allow you to track your expenses on the go)!  It’s safe & secure because it does not allow you to make transactions, it just reports information.  Be sure to read their security policy for more information.

Secondly, cut your budget (and still allocate money towards savings) to equal the income you have coming in. Don’t immediately start dipping into your savings cushion to maintain your lifestyle while you look for a job. Whoa! Radical, yes. Over-reacting, no. If you’re reading this post and have not lost your job, I would highly recommend that you seriously look at your budget, expenses, and your savings. If you don’t have at least 6 – 9 months worth of reserves saved up, you need to slash as much as you can from your budget to prepare you for the unthinkable. If you cannot get your expenses down to equal the amount of income you have coming in, pick up the phone and start dialing. Start with your mortgage company and inform them of what has happened and ask for help. There are several options that the lender can offer, if they don’t – ASK them and prepare to be persistant.

Options you can ask about include:

• Loan Extension – where your lender “freezes” your loan for periods of up to 3 months, during which time no payment is due. The payments are then added on to the end of your loan at your normal monthly payments.
• Forbearance – this option allows you to work out an alternative payment schedule with your lender, details of this arrangement will vary by lender and the type of loan you have. If you have a government loan such as FHA or VA you may qualify for additional help.
• Loan Modification – the terms of your loan are modified, usually this involves changing the term of the loan and the interest rate (if you are unemployed, you may not qualify since you need to show an ability to re-pay the loan).
• Loan Refinance – if you have a higher interest rate or adjustable rate mortgage, you may be able to refinance your mortgage down to a lower monthly payment. But this option requires you to be able to pay closing costs, equity in your home, and be able to prove you have the income to re-pay the loan. This might work if you have one borrower still working who can qualify for the mortgage on their own.
• Assistance under the Homeowner Affordability & Stability Plan. In February the Government announced a new plan designed to help homeowners avoid foreclosure and stay in their homes through several different avenues. For more on the overall plan see the press release. To see if you qualify, click here where you can take an online self assessment quiz and find links to speak to a HUD-Approved housing counselor for additional help.

Third, continue calling all your creditors to negotiate lower payments, interest rates on credit cards or other payment arrangements. Even on your services like phone, internet and cable call your provider and ask for a discount or explain your situation and ask what they can do to help you. The economic downturn has affected almost everyone and rather than lose your business, they’d like to retain your future business by helping you today.

It goes without saying, but I’ll say it anyway – file for unemployment benefits as soon as you lose your job. Don’t wait, it may take several weeks for them to process your application and get your paperwork in order. Many states allow you to file for unemployment benefits online. To find links to your state’s unemployment office, click here. Recent changes in the stimulus bill passed by the Government extends the amount of time you can collect unemployment from 26 weeks to now 33 weeks. Some states are even extending that time period based on state initiatives. Another facet of change to the unemployment benefits under the new stimulus bill is an extra $25 per week calculated into your benefits. The final change is making the first $2,400 you receive federally tax-free. After that amount, you pay your normal federal income tax on it.

In closing, the quicker you act the less devastating the results are going to be. Even if you haven’t lost your job, prepare for it anyway because it could very well happen to you or someone you love. Be prepared to monitor your finances weekly and monthly to stay on top of your spending. Get everyone in the family involved and on the same page right at the beginning so that there are no surprises down the road. As always, please let me know if you have questions or need further assistance on this topic by utilizing my Contact Page. If you have some tips or resources to share, please post them here to help your fellow readers! We want to hear from you!