A few years ago there was a seemingly never ending glut of capital available to be loaned out. Mortgage companies and banks did whatever they could to make mortgages look more desirable and offer mortgages to people who normally wouldn’t be able to afford them. This was not a sustainable process because many of the loans they gave out were to people who simply couldn’t afford them, and now the sub-prime mortgage industry is crashing in on itself. Many people with these sub-prime loans are unaware of the terms that their loan has, are having their monthly payments increased on them, and are losing their homes. If you’re in a situation like this, be proactive. You might have made a bad decision in the past with the mortgage, but there’s always time to make things right, and that time is now.
If you’re stuck in a sub-prime mortgage, here’s what to do:
Understand the Terms of Your Loan. Perhaps the single most prevalent problem with sub-prime loans is that people are sold them by fast talking salespersons and really don’t know what they’re getting into. If you have a sub-prime mortgage, take the time and thoroughly look through the terms of your loan. Chances are there will be some surprises in there, but you want to know what they are ahead of time so that you can plan and prepare for them. Are your payments going to jump up over time? If so, where are you going to find the extra money from? Are there any prepayment penalties? Is the interest rate reasonable? Is there a balloon at the end? Take a Saturday and thoroughly read through the terms of your loan so that you know what’s ahead and so you can prepare for any upcoming financial bumps in the road.
Refinance If You Can. Perhaps you took on your sub-prime loan when you had some bad credit. If it was a couple of years ago when you got it, have been paying everything on time and your credit score has improved, chances are you can qualify for a better mortgage than you have right now. As long as there aren’t any prepayment penalties, it’s definitely worth-while to do so. Get a 15 or 30 year fixed mortgage, and nothing else.
Be Proactive About Your Payment. A lot of these sub-prime loans that have a very high default rate are given to people that aren’t the best money managers and don’t have a lot of spare cash. After you pay for your monthly grocery budget and keep the lights on your house payment should be the next priority. Don’t pay for anything else until you get your groceries bought, your utilities paid, and your mortgage payment sent off.
If you can’t afford the mortgage, sell your home. There are some times when people have home loans they simply cannot afford. The mortgage balances might be far too high relative to their income, their monthly payments can be upwards of 50% of their take home pay, and it’s just not doable. I know you like your home, and it’s a hard thing to give up, but sometimes we just have to accept that we can’t continue to afford to live where we are now. It might just be best to try to sell your house and rent for a while so that you can get yourself in a more financially stable position so that later you can go back and buy a home and do it the right way.
If you’re in one of the sub-prime loans that are all over the news these days, you don’t have to panic, but you do have to be proactive. Carefully review the terms of your loan, and see if there’s anything you can do to get into a better mortgage or make paying for your home more of a priority. If you simply cannot afford your mortgage or your home, it’s probably time to sell it.