Last resort: Raid 401(k) to beat foreclosure |
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Figuring out which category you fit into isn't necessarily easy. Most people tend to think their problems are temporary, even if they aren't, Webb says.
A setback in your ability to pay bills, such as a short-term job loss or medical problems resulting in lost wages, likely qualify as temporary -- if you're on your way to resolving those issues -- says Rich Call, vice president of housing with Consumer Credit Counseling Service of Central Ohio.
A sign of bigger problems? High credit card debt
and a budget that can't support the house even after cutting the
fat and liquidating assets such as cars and savings accounts. In
that case, "There might not be much you or the lender can do to
save the house," says Dianne Reichel, a certified credit counselor
with GreenPath in Detroit.
If you have big problems, "don't tap into money you're going to need later. You'll just be throwing good money after bad."
Try other options first
Even if your mortgage problems are temporary, tapping your retirement assets to bail yourself out should be the last resort.
"Before you take the money out, try everything else," Call says. "Even if you're very serious about saving your house and you have no other money, (retirement assets) should be on the bottom of the list."
Instead, see a HUD-certified housing counselor, nonprofit credit counseling agency or financial planner. They'll be able to tell you where you can cut your expenses and what options, if any, you may have to save your house, Call says.
You might be able to refinance your mortgage or modify the terms of your existing loan rather than spend your retirement savings.
Options include a forbearance, a temporarily halt to mortgage payments that can give you time to get your finances in order. The missed payments are either added to the mortgage balance or tacked on to the end of the loan.
Lenders may also be willing to extend the number of years you have left to pay the loan, thus reducing your monthly payment, or substitute an adjustable interest rate for a fixed one. In rare instances, the lender may even reduce your loan amount to reflect a decline in the home's value.
"Lenders are more willing to work with people than in the past because they're getting stuck with houses they don't want," Reichel says.
If you've explored all of these options and you still feel like you need to tap your retirement savings to get out of a tough situation,
"figure out if that money is really going to get you out of trouble," Webb says.
"If the numbers don't add up, it's better to lose the house than to risk the only other asset your family may have."
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