Help a Reader: Can't Make Mortgage Payment

Here's a question/comment I recently received:

I have a loan for $315,000.00 and the payment is $2,400.00 a month. Adjustable at 7.25% interest only. And is going to go up. I put down over $50,000.00 on this house when I sold my first house. I have been here 5 years and business is slow and I just can't come up with the monthly payment anymore. I just missed my August payment, first late payment I have had. Any advice...i do A/C work and I'm slow now and in winter in So Cal its going to be even worse to make a payment. I have some money but not enough to get a loan.

So, what would you tell this reader to do?

Comments

[Real Estate Raj]

I would contact the bank you have a loan from. Find out what options they can do for you in-house.

[Jake]

I would figure out what monthly payment you think you can afford, miss another payment or two, and contact your loan servicer about an interest rate modification.

[Mr. ToughMoneyLove]

Problem seems to be income more than interest rate. Suggest getting a second part-time evening/weekend job to bring in more income while trying to sell house, unless he is upside down.

["Mo" Money]

First, contact your mortgage lender and communicate your problem to them. Let them help you work out an arrangement. Keep in mind that they don't want to own your house.

Second, as another poster recommended get a second job, this is any job that can increase your income temporarily until your first job comes back to what can support your payment.

[steve]

I did the math. The interest only payment alone is $1903.13, which means they escrow almost $500 for taxes and insurance. It also means you still owe $315,000 after 5 years. If you go to the bank where your loan is and tell them you want to fix the loan on a 30 year term, you can get your principal and interest payment to $1888.58 per month if you can get a 6% fixed rate. Of that payment, $313.88 will go towards your principal balance every month. After 1 year, that will be $3766 coming off what you owe on the house. If you have enough equity, you might be able to pay the taxes and insurance on your own. That will give you the option of paying the insurance on a payment schedule or all at once. There is a lot of competition with homeowner's insurance companies, so if you shop around, you might get a better rate. You can pay your taxes every 3 months on your own. As far as I know, your mortgage lates will go against your credit report but not late property tax payments. The other option is to buy a 2 family and live in one side and rent out the other side. Your tenant will pay a large part of your mortgage and you can deduct a lot of expenses for repairs, etc.

[Penny]

For the short term, think about getting one or more roommates. I had to do that years ago when I was faced with a job loss and an adjustable mortgage that went up just as my job went away.

[john]

you should have bought what you could afford.quit crying and get another job

[Chris]

I thought most A/C guys could do heaters, too. Pray for a cold winter.

[Strick]

I would think anyone who has owned a house in SoCal for the last 5 years has seen great appreciation (latest numbers from OFHEO shows the price of a existing homes in California is still up 40% over 5 years even after the 15% hit taken in the past year). Using this number (which obviously could be way off from the situation here) he's looking at almost $200K in equity. If this close to the case, don't let the house kill you in hard times. Sell it, put the 200K in the bank and rent until business is better and you can get a better mortgage. You'll have a nice down payment when the time is right.

Times really have changed if the equity he has in his home is not enough to just refinance no matter how bad business is. And I'm not sure what the "I have some money but not enough to get a loan" means, could he make the August payment or not?

[Strick]

John - I get tired of irresponsibility and the crying that often follows as well (that "forgotten Americans" article FMF linked to yesterday made me see red), but I'm not sure how that applies to this post. Sounds like someone that's business has fallen off and is wondering what to do with his mortgage (it is a good question, try to tough out the mortgage until business gets better, and how, or just sell). What offends you about this (and what makes you immune to this situation?)

[WiseMoneyMatters]

Step 1: Contact Your Lender
This is the most important thing to do. Let them know what's going on and see what they can do to help.

Step 2: Look for additional income to pay the mortgage payment
Get a 2nd job. Get roommates. Anything.

Step 3: Sell your house
If you've been there for 5 years, you should have a decent amount of equity. Price your house at below market value and sell the house quickly. If step 2 is working out really well, then increase the selling price as you won't need to sell it as quickly.

Step 4: Find new housing
Calculate the difference between renting and buying. You may want to invest your money instead of buying a new home. Find a home or apartment to rent instead. Or, if purchasing is better, purchase a smaller house. This will be a much more manageable payment even during slow times. Save excess money for a payment on a future bigger house as NEEDED.

Step 5: Create an emergency fund
Create a savings account with a few months worth of expenses. This way you won't be in this situation ever again.

[Bill Davis]

You may be able to rent it out for enough to make a sizable dent in the monthly mortgage payment and rent somewhere else a LOT cheaper.

I take from your "I do A/C work" that you don't own your business -- you work for somebody else. You can make $6,000 a weekend installing systems in old houses. Now, of course, you won't get a gig every weekend, but once every month or two, and you're good.

Start selling your expertise. Appeal to people's wanting to save money (think "Winter A/C specials"). You can also do A/C servicing and heating work too (mentioned above). Do "Energy-saving specials" like energy efficiency consultations. Think green, CFLs, caulking and weatherstripping. Become an entrepreneur.

I'd also suggest, as others have, to contact your lender. The last thing they want is another house on their books. They'll most likely make a deal with you. IF you have some equity in the house (you may, you may not, depending on your particular area, even after 5 years), you can get a much better loan. There are still mortgages out there that can be had with a 6% fixed rate. Do it now while your credit is still good. Don't wait...

[Terry]

Go into emergency mode. Move into the basement or sleep on a couch in the living room, and rent out all available bedrooms. Post an ad on Craigslist, rent the rooms by the week, this will keep them filled. Fill all vacancies with another Craigslist post. If you have cable/satellite tv and/or high speed internet, these will attract people.

[Hank]

Sell the house.

[Rick]

since we assume you have equity, sell or refinance to fixed with a lower payment you can make.

[Joe]

Get a 2nd job. Get rid of the internet, it's not a necessity.

[MasterPo]

To Sam Strickland on 9/3 at 5:30pm - Given what we have been told about the situation I agree with John at 5:09pm. If this guy is in his own business I'm sure he knows there are ups and downs. He even admits the winter season is tough. I've been out of work and still paid my mortgage on time. I've had to take jobs that cut my pay to 30% of what it was (not 30% less, only 30% of prior pay!) and still made my mortgage payment. That was priority #1.

I think this person is yet another of the great masses who just bite off more than they can chew.

If you give them help (financially speaking), how about some help for people like me who paid the mortgage no matter what I had to do? You never hear about help for us!!

[Strick]

MasterPo - Sorry, I just don't understand.

John said "you should have bought what you could afford.quit crying and get another job".

So asking for financial advice is crying? (Unless something was cut out I didn't see I'm not sure where he was complaining or self-pitying at all, just stating his situation factually and asking for advice)

And if you only get a mortgage that you can handle in an absolute worst case scenario (think medical insurance claim denial) then you can't really ever get a mortgage, can you? (I admit the fact he has an interest only loan makes me think he did get too much loan and gave himself no room, but since he's not exactly playing a victim here I didn't think it was worth hashing that out) Being responsible would be getting something you most likely can afford even with some hard luck and then dealing with it if extreme hard times comes (like sell the house or get another job or renter). If your income could fall as much as to 30% of what it was, couldn't it have as easily fallen to a point that you'd have to look at other options?

And where did he ask for (or I suggest) financial assistance? I think these liberal bail-out-everyone presswriters and congressmen are getting to the folks on this site...or am I just the sucker here FMF? (By the way FMF, given my post on another topic wondering how much I'd pay to save the life of my sister-in-law, could you take my email address off the comment MasterPo is referencing, my mistake, thanks)

[FMF]

Strick --

Your email was actually posted on this post (above). I removed it and put your name in.

[Tabby]

I think you have to keep in mind the SoCal housing market. I live in SoCal and a 365K house (315K mortgage plus 50K down payment) is NOT an extravagant house, even 5 years ago. For that price he probably has a VERY small 2 bedroom/1 bath, postage sized yard in an ok but not great neighborhood or a home that is a little larger in a bad neighborhood. My point is that this is not someone who went out and bought a McMansion. He also said he has made the payments on time for the past 5 years. Lets not get up on our condescending high horses. There, but for the grace of God, go I. Also, this is Southern California....the heating work is not as plentiful here. A cold winter is one that drops down to 50 degrees.

I agree with taking on extra A/C work on the weekends, finding a second job or bringing in renters to make ends meet. Also, definitely contact the mortgage company and refinance if possible. Give yourself a few weeks to make a plan and act on it, but nothing longer. If you aren't able to make progress on the suggestions within 2 weeks put your home on the market right away. It is taking homes longer to sell in this market. If you have to sell you don't want to lose any time.

Best of luck!

[Garrison]

Get a loan through Prosper.com. Get enough to get you good on your mortgage until your busy season and then make the smaller payments to Prosper. Also, we go through a dry/busy season with my husbands business and during the busy season we overpay on our morgage and car so that we can miss a payment or two during the dry season and not lose our home or car. However, when we were really struggling Prosper saved our lives.....

[MasterPo]

Strick - I don't know how I could be any clearer.

Based on what we have been told here, sounds like this guy is in a volatile industry. He didn't take that into consideration when he got a $315,000 interest-only mortgage. Sounds to me like he's no different than the $9/hr Wendy's employee to takes out a multi-hundred thousand dollar mortgage and wonders why that can't pay it. It irks me to no end that people like this get lavished with sympathy and tax-payer help but people like me (and probably you) who do whatever it takes to pay the mortgage on time don't get any help or even kudos. Why bother being a good boy then?

BTW, notice he said he put $50,000 down from a prior home sale - what happened to the rest of the proceeds from that sale? Why wasn't it all rolled into his new home?!

[MasterPo]

Garrison - I don't see how a Prosper loan will help. It can only hurt. He'll be paying 7% to the morgage PLUS at least 7% to the Propser loan because of his low credit standing and uncertain work prospects.

[Anne]

Okay, so let's say that this guy bit off way more than he could chew and doesn't manage his money well. Even with that, it is in NO way helpful to tell him to "quit crying." He knows he's in a bad situation, and he wants to know what he should do to get himself out of it. Provide some helpful suggestions!

[MasterPo]

Anne - What you are seeing here (and on other sites and blogs) is a growing back-lash at people - adults - who had no clue what they were doing, people who were oblivious to the realities of home ownership, and people who had no hope of being able to afford what they wanted to purchase, and now are lamenting how horrible things have gone and it's our (me, you and the rest of us) responsibility to help them save their homes and lifestyles. Meanwhile people like you and me work our fingers to the bone to save up over years and years for a good home, scrape and stretch to do everything we can not to miss payments, and we get no help or relief or even a pat on the back for be so diligent and responsible. Makes you wonder who is really smart in all this.

To the point, I think all the above suggestions - roomaate, second job, sell the house etc. are all viable and reasonable approaches.

[Lady Tawodi]

When did he put down that $50k? Did he refinance afterwards? I'd definitely refinance after a big payment like that to get a better interest rate and lower payments.

Otherwise I agree with other people, a room mate!

[Kevin]

MasterPo - maybe the rest of the previous home sale went to pay off the previous home's mortgage(s).

Sounds like this guy went a little overboard with his purchase. SoCal or not, an interest only loan is a disaster waiting to happen. If you can't make the payments, there's only 2 things to do - either sell the home or make more money. Lots of good ideas on how to make more money above. Don't be afraid to sell the home though, I know what it's like to feel like your mortgage payment is an anchor continually pulling you down. You may have to swallow your pride and buy/rent something less desirable, but believe me that is better than the stress from continuing on the same path.

[Jim]

1. if you have equity in the house to come out ahead then sell it.

2. If you want to keep the house then see if you can refinance to a 30 year fixed.

3. to get more money: take a roommate, find part time supplemental / seasonal work for winter, if you're maried then your wife should be working.

Jim

[Nicole]

This is hardly the worst story of fiscal irresponsibility I've heard, so let's give him the benefit of the doubt and not kick him while he's down.

It's hard to advise without knowing more facts. For example, if he has a two bedroom house and is married with two kids, a roommate is not really an option. But if he is single and has two or more bedrooms, it is. Also, is there other debt, how much is his income, has he tried to refinance, etc.? The main problem here seems to be a lack of income, so don't use the bad market as an excuse. Be willing to do anything (legal) to make some money - a la Dave Ramsey deliver pizzas, wash cars, clean houses, etc.

[Tabby]

MasterPo- Why is there so much resentment/backlash for making a what you consider a poor financial decision? I don't mean you personally, I am referring to the backlash you mentioned in your post to Anne.

Everyone has made financial mistakes or poor decisions one time or another. If the government has decided to bail these people out, isn't your problem really with the government's decision? What about the banks and mortgage companies that approved these loans in the first place? It is easy to attack the individual, but why weren't there more stringent guidelines for loan approval?

It doesn't sound to me like this reader is asking for a handout, but is looking for advice on a way out.

[Sarah]

MasterPo, among the adult virtues are compassion and charity. Whatever psychic charge you're getting out of kicking every person in over his head who writes in asking for advice, you're not helping and you're in no position to suggest that others aren't being grownups. Would you say this sort of thing to the guy's face? Why is it that you need so very, very badly to trash people who are trying to improve their situations?

If you don't understand how you yourself could be in this position one day--and you've said you've worked your fingers to the bone to make your own payments, which suggests to me that you have been not all that far from it--then you have as poor a grasp of the economic realities as anyone who ever fell for the sales pitch for an interest-only ARM. Just about all of us are vulnerable. (No, I'm not in that situation, but I've made my share of dumb financial mistakes, especially when I was younger, and I bet most people reading this have done so, too.)

[MasterPo]

To everyone - It's about badly executed decisions, falling on tough times, or being charitable. It's about being personally accountable for your own actions.

We all have hard luck stories at least once in out lives. I could tell you our (me and my wife) hard luck story about the trials and tribulations of having bought our home and soooo many things didn't go right, soooooo many unexpected/unforeseen expenses throughout the years. But I won't, because it's not your problem.

It's mine.

I'm not asking you to help me pay for my house. Neither should these people. No one put a gun to their heads and forced them to sign the mortgage agreement. People sign all kinds of things stupidly. I've expereinced a car salesman try to get me to sign a blank purchase agreement! I refused and walked out but I'm sure some dumb shmuck would. Not my job to protect people from dumb mistakes.

Tabby, you said the "government" wants to help. You and I *are* the government. And the "help" comes from your taxes and mine. I may not be late on my payments but that doesn't mean I have cash to burn. So if you're so sure people deserve help send me an email and I'll forward my address for you to send me a check. I promise to send a nice 'Thank You' card.

Sarah, I bet you learned a lot from having made those financial mistakes when you were young. Did you cry that it was someone else's fault? Did you try to appeal to strangers for compassion and help? Or did you suck it up, move on, and consider it tuition in the school of life? I bet the latter.

One more point: If you're going to bail out people for bad decisions about houses because you don't want to see them ruined why not also pay people's $10,000's of credit card debt too? (where does it stop?)

[MasterPo]

Oops - The opening sentence above should read: It's NOT about...

[Strick]

To MasterPo - Seems like I agree with absolutely everything you say @ 3:24 (and the suggestion that High Schoolers read "Millionaire Next Door" is an excellent idea), but I still don't see how any of it applies to this poster:

Sounds like he is personally accountable for his own actions (just asking for our opinion as to which people think he should take).

You did tell us about one of your hard times (making only 30% of what you did originally) and I won't hold that against you and I didn't think you were complaining or blaming others for that. Yes it was your problem and you implied nothing else and I'm sure you made appropriate adjustments to your spending when this happened (happy that didn't have to include selling your house).

The commenter was not asking for help to pay for his house. He did not suggest he should have been protected from his mistakes with government regulation.

He never asked for a check or government help. I disagree with Tabby that your problem is just with the government (the government wouldn't be taxing the heck out of us if there weren't so many people out there thinking they are "entitled" to so much stuff)

He probably is learning from his financial mistakes. He did not cry that it was someone elses fault. He did not appeal to strangers for compassion or help (other than for financial advice, which I thought was the whole point of this board [FMF did title this "Help A Reader"]. I've asked for tax advice before on this board and didn't really feel like I was doing anything wrong by not keeping my "problems" to myself). I have no reason to believe he isn't sucking it up and moving on.

He never asked for a bail out nor does it look like he is expecting one.

[Paula]

Another point about SoCal is that the equity in houses has dropped a lot! I live in a very good neighborhood that has weathered the market better than a lot of towns near us and my house value has changed from mid to high 600's to 410 last look. We are ok, because we have lived in this house for 10 years, have a 30 year fix and bought a fixer upper one day before it forclosed. $315,000 is not a lot of house money here.

[Paula]

PS. I am a big advocate about personal responsibility. However, it seems this gentleman is looking for help in his situation not a handout. He needs to get out of the interest only loan, otherwise there is not a lot of hope.

I said we have a 30 year fixed. But during this last housing madness I had brokers calling me telling me that I was stupid and taking money away from my family because I wouldn't go to an adjustable loan. I stuck to my guns but I did worry about my decision for a long time. Now I am glad!

[MasterPo]

Strick - You're correct. He was asking for advise and people gave it (second job, roommate, sell etc). Frannkly too if these ideas didnt' already occur to him I have to wonder even more about his decision capability. Then again, he may have been looking for something he hadn't thought of himself. Hard to say from what we were given.

But then along came others saying how he and others like him need more "help" than just advise. That was more the audience I was speaking to.

The 30% pay (70% pay cut) example was merely to show that even in that dire a situation my wife and I found was to pay the mortgage on time and not go crying for others' help like too many are now (maybe not this guy per se).

You have to admit that taking a 7% interest-only $315k mortgage isn't a confident/bullish stance (presuming there isn't more to the story we don't know).

[Strick]

MasterPro - I fully admit the interest-only mortgage doesn't give me confidence he made good decisions (I also still do wonder what the "I have some money" line means but couldn't make his mortgage payment). I may be giving to much benefit of the doubt with all of this though. I guess I just hold the entitled whiners of the world with such low esteem I didn't feel someone who maybe even made a dumb mistake deserved to be thrown in the same pot.

You are correct that some of the comments do make me cringe (one of the first suggestions was that he purposely miss more payments to then try to negotiate a lower interest rate).

[Sarah]

MasterPo, if, having made my dumb mistake, I realized that I *had* been dumb and went to seek advice--not asking other people to fix my problem for me, just asking what the best way was to deal with my situation--and people told me to "stop crying" and ranted about how lazy and stupid and greedy and selfish people in my position were, I not only would not have learned anything useful, but I would have felt even worse than I already did (anyone facing losing their home is probably feeling pretty darned bad). It would have done me no good at all. Maybe I would have felt hopeless and given up on trying to fix my situation, even.

There are always people willing to kick people who are already down. Far more than there are people willing to help (even with advice). Guess which people are actually contributing? If I were you, I'd seriously be asking myself why I keep feeling the need to grab at opportunities to attack (anonymously) someone who's already vulnerable and miserable.

If you're a Christian (as many readers here seem to be), I'd like to point out two stories to you: that of the Prodigal Son and that of Job's counsellors.

[Tabby]

MasterPO said, "But then along came others saying how he and others like him need more "help" than just advise. That was more the audience I was speaking to."

I didn't read anyone saying this. Perhaps you are confusing this with a different post?

[john]

Strick you need to earn extra income. I've always have had two jobs.One pays all my house bills the other was fun money.Now with the way things are i don't blow my money as much as before.I also have not bought a new car in 5 years.All my cars are paid for and i only pay liabilty ins.i save alot of money -no car payments-dont use credit cards as interest is high-pay cash for gas -less joy riding.hope you see where i'm coming from