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What to do if you can't pay your bills

The devastating economic effects of the coronavirus pandemic are hitting hard here in Grays Harbor County, affecting each of our lives each day.

Even many folks who had a bit of an emergency fund for a financial buffer are beginning to find themselves in a difficult situation as unemployment soars, businesses close and many organizations are forced to go on hiatus.

Can’t pay your bills?

So, what do you do if you can’t pay your bills?

Today we’re talking with Julie Galligan our housing counselor here at NeighborWorks of Grays Harbor. She’s working hard to keep up with all the latest COVID-19 related financial programs and has many very practical tips.

“The recession of 2008 was very difficult,” said Julie, “but what we are experiencing now is on a whole other level. This is just wiping everything out economically from the bottom to the top. It’s a whole different economic crash.”

Before we get into some details of what you can do, we want you to hear her over-arching advice for those who are struggling to pay bills – quickly communicate your situation with your creditors.

“Anytime when it comes to your mortgage, rent or your bills, if you can see you will have a hard time paying, contact your creditor immediately. That is the first thing. Communicate!” she said.

What about the mortgage or rent?

Next to being able to eat, making sure you have a roof over your head needs to be your priority. In this column we will talk about mortgages and will tackle paying rent in our next column.

First, if you are able to keep your mortgage current, make it a top priority. However, if you are having a hard time paying, or foresee that you will have a hard time paying your mortgage soon, you are not alone.

Call your lender as soon as possible. In that conversation, ask for any immediately available solutions and make a point to find out exactly what type of loan you have – different programs are available for different types of loans and underwriters, Julie explained.

In the United States, 95 percent of loans are government backed. Conventional, FHA, VA, and USDA and other conforming loans that meet the lending standards of Fannie Mae or Freddie Mac are included and may have relief options. How do you know who the underwriter of your loan is? If it’s been awhile since you initiated your mortgage, you may not remember who your loan underwriter is. Who cares until there is a problem! If you have your Deed of Trust handy, you can find it in the document. If not, simply call your lender (the institution you send your monthly payment to). The employees there can easily look up the type of loan you have.

“There are a variety of ways to restructure a loan to make it affordable to you,” she added.

For some people, simply restructuring the loan by refinancing to a lower interest rate, could make a huge difference in your monthly payments.

Other options include modifying your loan to place past due payments onto the balance of your loan and also determine the most affordable payment that fits into your current household income situation. he payback time of your loan is extended while monthly payments are reduced to something you can sustainably afford. Yes, that means you will be paying on that mortgage longer, but that is a much better outcome than losing your house to eventual foreclosure because you can’t pay the mortgage, now!

Another option can be for the homeowner to pay reduced or partial payments, This option is a separate loan on your mortgage but doesn’t need to be paid back until you sell the home. This may be your best option for you based upon your current income status. Check with your lender if they would be open to that possibility, if it makes sense.

”Also, some lenders have the unemployment program which can reduce or suspend your payments for up to twelve months,” Julie said.

Another option called “forbearance” for mortgages is advertised a lot right now. This is again for a short-term hardship. It will allow you to suspend your payments for six to twelve months but you have to be prepared to pay a balloon payment at the end of that time. Making contact with your lender right away to discuss your situation, whether it is a short-term or long-term hardship, will help ensure that the right option is put in place for you.

Again, not every type of loan is eligible for these options, nor are they the only or best options for everyone. Obviously if more income isn’t expected in the next few months, pushing off the payment for a ‘balloon payment’ catchup may not be a great idea. However, a bit like a reverse mortgage, for people in certain situations, it’s a good fit. The key is to find the right fit for your situation.

We can help

Across the United States, in the week ending April 12, the percentage of loans in forbearance went up from .25 percent to nearly 6 percent. That’s a 60 percent increase from the prior week! And with more people becoming unemployed, that number is expected to go up.

At NeighborWorks of Grays Harbor, we are a nonprofit organization committed to creating safe and affordable housing for all residents of Grays Harbor County. We understand mortgages and other financial issues and can help explain some of your options and various programs.

So, if you need some explanation about mortgage programs, give us a call at (360) 533-7828. We are practicing social distancing so some of us are working from home on certain days, but we will get back to you as soon as we can.

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