What to Do If You Can’t Afford Your Mortgage
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I saw a video on Instagram where a Queen said her mortgage jumped from around $3,000 to about $5,000. That’s a $2,000 increase! Her story shocked thousands of people and activated a new level of fear when it comes to buying a home. I realized, from looking through the comments that many people did not know that their mortgage could change and had no idea what to do if this happened to them.
If you’re struggling to keep up with your mortgage payment, don’t worry, I get you. The stress of falling behind on your biggest monthly bill can feel overwhelming. But before you spiral, know this—you're not out of options. There are steps you can take to either keep your home or make a smooth exit if that’s the better choice for your financial future.
Key Takeaways
If you’re struggling to pay your mortgage, don’t panic—there are options to either stay in your home or transition out smoothly.
Contact your lender before you fall behind to discuss modification, refinancing, or other assistance programs.
Know your numbers—if your mortgage is more than 30-33% of your gross income, you may qualify for relief.
Explore options such as selling, a short sale, loan assumption, or a deed-in-lieu if staying in the home isn’t possible.
Step 1: Decide What You Really Want
Ask yourself if you want to stay in this home, or are you open to letting it go?
Is this your forever home? The one you imagined raising your kids in, growing old in, making memories?
Or are you feeling like this home is more of a financial burden than a blessing? Maybe you regret buying it, or it just doesn’t fit your needs anymore.
Your emotional attachment matters, but so do the numbers. You may not want to hear this, but if your mortgage is crushing your finances, you may need to consider other options.
Step 2: Crunch the Numbers
Even if you feel like you can’t afford your mortgage, your lender might see things differently. Lenders typically consider a mortgage “affordable” if your total payment—including principal, interest, taxes, insurance (PITI), and HOA fees—doesn’t exceed 30-33% of your gross income.
How to Calculate Mortgage Affordability
Take your total monthly mortgage payment and divide it by your gross (pre-tax) income.
If the percentage is under 30-33%, lenders may not offer much assistance.
If it’s above that threshold, you may have more options for modification or assistance.
Step 3: Find Out Who Owns Your Mortgage
This part matters more than people think! Government-backed programs often require your loan to be owned by Fannie Mae or Freddie Mac.
How to Check Your Loan Ownership
Fannie Mae: https://www.knowyouroptions.com/loanlookup
Freddie Mac: https://www.freddiemac.com/loanlookup/
If your loan isn’t backed by one of these, your lender may still have options for you.
If You Want to Stay in Your Home
Option 1: Loan Modification
A loan modification changes the terms of your mortgage—maybe by lowering your interest rate, extending your loan term, or even reducing your principal balance.
What to Do:
Contact your lender before you fall behind (if possible) and ask for their Loss Mitigation Department.
Explain your hardship and request a loan modification.
If needed, work with a HUD-approved housing counselor to negotiate on your behalf.
Call (888) 995-4673 or visit hud.gov for free counseling.
Option 2: Refinance
If your credit is solid and your income is stable, refinancing could lower your monthly payment. Refinancing makes sense if interest rates are lower now than when you first got your mortgage, as this could reduce your overall costs. It is also a good option if you plan to stay in the home long enough to offset the closing costs associated with the new loan. Additionally, refinancing should improve your long-term financial stability, ensuring that the new mortgage aligns better with your income and your budget.
If You Need to Move On
Option 1: Sell Your Home
If you have equity in your home, selling might be your best bet. Even if you’re behind on payments, selling could help you walk away debt-free (or even with cash in your pocket).
Option 2: Short Sale
If your home is worth less than what you owe, your lender might agree to a short sale—allowing you to sell the home for less than the balance of your mortgage. You’ll need their approval, but it can be a better alternative to foreclosure.
Option 3: Loan Assumption
If you have an FHA loan, a qualified buyer might be able to take over your mortgage, saving you from foreclosure while allowing someone else to take on your payments.
Option 4: Deed-in-Lieu of Foreclosure
With this option, you voluntarily give the home back to the lender in exchange for debt forgiveness. However, you usually have to prove financial hardship and attempt to sell the home first.
Option 5: Foreclosure (Worst-Case Scenario)
Foreclosure is when the bank takes back the home after you stop making payments. It damages your credit and makes it harder to buy another home in the future. If you’re heading toward foreclosure, know your rights and explore every other option first.
Foreclosure Timeline:
1st Missed Payment: Expect calls and notices from your lender.
2nd Missed Payment: Your lender will escalate collection efforts.
3rd Missed Payment: You’ll receive a Notice of Default, demanding full payment.
Pre-Foreclosure Period: The lender begins legal foreclosure proceedings.
Foreclosure: Your home is sold at auction.
Foreclosure laws vary by state, so check your state’s timeline for specifics.
Watch Out for Tax Consequences
If your lender forgives any portion of your mortgage debt, the IRS might consider it taxable income.
If you receive a 1099-C (Cancellation of Debt) form, talk to a tax professional about whether you’ll owe taxes on the forgiven amount.
Final Thoughts
Losing a home is a tough situation, but you have options—whether it’s working with your lender to keep your home or making a strategic exit. The key is acting fast and knowing where to get help.
If you’re facing mortgage troubles, reach out to HUD-approved housing counselors for free assistance and explore all possible solutions before making a decision.
