Can You Keep Your House When You Lose Your Job?

August 18, 2014

Lose Your JobOne of the scariest things about losing your job is trying to figure out what you will do about your living arrangements. After all, if you have a mortgage and lose your job, it might make it difficult to keep up with your payments. Whether or not it is practical to keep your home after a job loss depends on your situation, and what you can expect going forward.

Can Your Emergency Fund Make the Payments?

The first thing to consider is whether or not your emergency fund can handle your mortgage payments. Do you have enough assets to keep making payments?

If you can handle payments, with the help of your emergency fund, for six months or so, you might be able to tough it out – as long as you can get some income quickly.

When you are determined to keep your house, and keep making mortgage payments, you will need to make sure that you are prepared with income. Your partner might need to get a job, and you might need to accept work that you wouldn’t normally do. You might need to tap into investments, although you should be very, very wary of depleting your retirement account just to make your mortgage payments.

Be realistic about whether or not you can handle making your mortgage payments with your job loss. If you can’t expect to make the payments, it’s time to take action and move on as quickly as you can before things get worse.

Getting Rid of the House

“Borrowers finding it difficult to pay their mortgages should first communicate their difficulties to their mortgage companies,” says financial advisor Richard Sturm. “Mortgage companies are experienced with borrowers who run into difficult times and may have solutions that would equally benefit both the borrower and the lender.”

However, when it gets right down to it, realize that your lender will do what’s best for the bank before worrying about what’s best for you. But it’s a good idea to understand your options as quickly as possible, and work to find a solution before things get too desperate.

Sturm suggests that a short sale can be a reasonable option. “Borrowers with negative equity and no ability to make future payments might consider a short sale,” he says. “A short sale is an agreement made between the borrower and the lender whereby the lender may agree to take less than what is owed upon the sale of the property.”

This is a shorter process than foreclosure, and you might be able to avoid some of the problems that come with a foreclosure. However, it’s important to understand that the amount you are forgiven is considered income by the IRS. So, if you owe $150,000 on your home, and the bank agrees to allow you to sell for $135,000, the difference of $15,000 is considered income and you will be taxed on it. If your unemployment goes on long enough that this doesn’t matter, it’s not a problem. But if you find a job, or if you made good money before you lost your job, this loan forgiveness can result in higher taxes.

In some cases, foreclosure is the only option. As bad as it sounds, the reality is that you can often live in your home for months while you look for a suitable rental or other arrangement before the foreclosure process is completed.

It’s never fun to contemplate the realities of a job loss, but they must be faced. Consider your options when it comes to your home, and make sure you do what’s necessary for your finances in this difficult time.

So, if you were to lose your job, do you think you’d be able to keep your house? Leave a comment and tell us why or why not!

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Miranda

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Miranda
Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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One Response to Can You Keep Your House When You Lose Your Job?

  • Big-D

    As someone who was unemployed for 2 years during the last downturn, I can tell you the bank did not want to lift a finger to help me. I never missed a payment nor lost the house (in fact it is now paid off less than a year after I got my first job after 2 years of unemployment). I had a 15 year loan (year 3 is when I lost my job) @ 4.75%, with a payment of 1200 a month. I had no problems with that when I was working. However on unemployment, that was pushing my boundaries. I asked to refinance (since rates were at 2-3%) and they declined as I did not have a regular source of income. I was self employed and that would not work to get a traditional mortgage. I was told from the bank “We can do nothing for you until you start missing payments.”

    I was so angry at the bank. They basically were telling me that they could do nothing for me but let me go into arrears, and then they would work with me on lowering my monthly payment. My brother found the same thing. He was also self employed, and the bank would not work with him. He begged and pleaded as his 5 year ARM ballooned from 1% to 8% and the payments almost doubled. Well he knew he could not make the payments, so he left (moved) and short sold the house. As he quit making payments then the bank basically was pleading with him to stay, and they would give him a zero percent interest loan. He would have loved to keep that house, but they made their bed when they would not re-negotiate with him on the loan before he was forced to move. He short sold the house for about $30k less than it was worth (and yes, that was considered income, which he got audited by the DOR and IRS).

    All I can say is that a loan has to meet certain requirements, which banks have been beat over the head with laws on what they can do. Their flexibility has been robbed from them. People who legitimately want help cannot get it, all because of the new laws passed in the last few years to “protect” people from predatory lending. While it might help a few from predatory lending, it also hurts those of us who wanted just legitimate changes to the terms of our existing loans.

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