Fixing Bad Credit Mortgage Loans and Your Finances

By Karen Lawson
Mortgage Credit Problems Columnist

You're using credit cards to make ends meet between paychecks. You used to mail your mortgage payment so it would be received by the due date, but now you're letting it go until just before a late charge is assessed. Subtle changes in your finances can signal problems ahead. Here are some tips for keeping your finances on track and protecting your home from foreclosure.

Avoiding Bad Credit: Save for Emergencies

If you're depending on credit cards for emergency expenses, it's time to start saving.  Set up an automatic payroll deduction for direct deposit to a savings account. Don't overdo it; you can always increase your savings deposits as your income increases. Getting in the habit of paying yourself first will help you save. Even if you have credit card balances, it's important save something every month. Eventually, you'll build enough savings so that you won't need to carry balances on credit cards for unplanned expenses.

Bad Credit Mortgage: Reviewing Your Options

If you took out a non-standard bad credit mortgage to buy your home, it's time to consider options for refinancing or rewriting your present loan. The National Association of Realtors estimates that home prices dropped almost 8% during the first three months of 2008. Comparing what your home is currently worth to the amount of mortgage loan(s) owed against it can help you determine what to do next:

Your home is worth less than your mortgage balance: This may not be a problem if you're planning to keep your home, but you need to check your mortgage documents to make sure your mortgage balance is not increasing due to deferred interest being added. If you find that this is the case, contact your lender and ask for a modification of your loan terms to eliminate negative amortization. Don't stop making payments only because your mortgage is "upside down." Foreclosure can stay on your credit record for up to ten years.

Need to sell? Avoiding foreclosure with a short sale: If you can't afford to keep your home, and you owe more than it's worth, ask your mortgage lender about a short sale. This means getting permission from your lender to sell your home for its current value or less. If your lender can't help, please contact a housing counseling agency or Hope Now for assistance.

Sources:

• Find a Housing Counselor
• Home Prices Continue Sharp Descent
• Hope Now

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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