Options if You Can’t Pay Your Mortgage

1. Forbearance

Mortgage forbearance is a temporary pause or reduction in payments that your lender may grant you during financial hardship. The lender typically agrees to pause foreclosure proceedings during the forbearance period, which may be up to 12 months.

Forbearance does not erase your debt. You'll need to repay any suspended or late payments at the end of the forbearance period. This may involve a lump-sum payment or a repayment plan that increases your monthly payments or adds extra payments to the end of the loan.

2. Refinancing

Refinancing replaces your current mortgage with a new loan, ideally with a lower interest rate or longer term. Either can lower your payments and make your mortgage more affordable. However, you'll typically need to pay (or finance) origination fees between 2% to 6% of the loan amount.

Mortgage refinancing works best if you have good credit, qualify for a lower interest rate than your current loan and have at least 20% equity in the home (so you can avoid mortgage insurance on the new loan). If you've already missed payments on your current loan and your credit score has suffered, refinancing may be more difficult, but not necessarily impossible.

Learn more: Can I Refinance if I'm Behind on Mortgage Payments?

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Check today’s refinance offers and current rates to find the right loan to lower payments or shorten your term.

3. Mortgage Modification

A mortgage modification permanently changes your loan terms to make your monthly payments more manageable. This typically extends the length of your loan, which can increase the total interest you'll pay over time. You may feel this is a worthy trade-off if you hope to keep your home.

Getting a mortgage modification generally requires documenting financial hardship due to the death of a co-borrower, long-term illness, disability, divorce, a natural disaster or a loss of income. Lenders aren't obligated to grant mortgage modifications, but your odds of approval may be better if you can prove you'll be able to keep up with payments under the new loan terms.

4. Selling the Home

If your home is worth more than you owe, you may be able to sell it to pay off the mortgage. This can avoid foreclosure and the resulting damage to your credit. If your home is in good condition and there's demand in your area, it may sell relatively quickly.

Try to keep up with your mortgage payments while you work to sell your home. Missing mortgage payments can have a significant negative impact on your credit, although the effects are generally less severe than for a foreclosure.

Tip: When calculating potential profit from your home sale, consider the costs of selling a home, such as real estate agent's commissions and closing costs. Total costs generally range from 10% to 15% of the home's value.

5. Renting Out the Home

If you have somewhere else to live at little or no cost, you may be able to rent out your home to cover your mortgage payments while you get back on your feet. Notify your lender of your plans to make sure your loan terms allow renting the property. Also check with your homeowners association if you have one; some prohibit rentals.

While you search for tenants, keep making your mortgage payments if possible. Missed payments can damage your credit score, and if you go into foreclosure after renting the property, your tenants could have grounds to sue you.

Reminder: While the home is rented, you're still responsible for the cost of maintenance and repairs. You may also need landlord insurance, which typically costs about 25% more than standard home insurance.

6. Short Sale

In a short sale, the lender agrees to let you sell your home for less than the mortgage balance and to accept the sale amount in exchange for settling your loan. A short sale will appear as a negative entry on your credit report and will likely lower your credit scores.

A short sale may help you avoid paying a deficiency judgment—a penalty lenders are awarded in some states when the collateral on a loan is worth less than the amount owed. Forgiven deficiency judgments may be considered taxable income in certain situations, so check with your tax professional to see how a short sale might affect your tax liability.

Learn more: What Is Debt Settlement?

7. Deed in Lieu of Foreclosure

A deed in lieu of foreclosure allows you to voluntarily transfer ownership of your home to the lender, avoiding foreclosure and releasing you from your mortgage obligations. Lenders may even grant concessions such as letting you stay in the home while you seek other living arrangements or giving you money for moving expenses.

A deed in lieu of foreclosure may be less costly and time-consuming than the foreclosure process, and the negative consequences for your credit typically are less severe.

Be aware: Forgiven debt is taxed as income. Depending on the amount of your mortgage, this could mean an unexpected tax bill. Consult a tax professional before opting for a deed in lieu.

Frequently Asked Questions

The Bottom Line

If you're having trouble paying your mortgage, being proactive can help you stay in your home and prevent potential damage to your credit. As soon as you realize you're in financial difficulty, assess your budget and reach out to your lender to discuss your options.

Whether you keep your current home or start over with another home in the future, staying on top of your finances is a smart move. You can sign up for free credit monitoring from Experian to keep tabs on your FICO^® Score^Θ and see how you can improve it.