How Mortgage Problems Grow Fast

During the long life of their mortgage, many people experience times when they face significant financial challenges. One or more challenges can increase your risk of foreclosure by simultaneously jeopardizing your ability to do the following:.

• make on time mortgage payments.
• qualify to refinance your mortgage on acceptable terms.
• earn enough income by selling or renting your home.

Homeowners may be surprised when their ability to pay their mortgage is threatened at the same time as their ability to remedy the situation by refinancing their mortgage or selling their home. This happens more than most people anticipate for several reasons including:

• The long term nature of a mortgage by itself increases the probability that you will face multiple financial challenges simultaneously.
• Some financial challenges are related to others - for example, 2008 financial crisis and the decline in U.S. home prices.
• Some of the most destructive financial challenges can simultaneously jeopardize both your ability to pay your mortgage on time and your ability to remedy the situation all by themselves.

Things that can simultaneously jeopardize your capacity to pay your mortgage on time and your ability to qualify to refinance your mortgage include:

• unemployment, under employment and gaps in employment - can reduce your current income and your expected income in the future.
• increased debt including car loans and credit card debt - can increase your current and expected debt obligations.
• rising interest rates - can increase your current and expected interest expense.
• accident or illness resulting in temporary or permanent disability - can reduce your ability to earn an income and increase your debts both now and in the future.

Things that can simultaneously jeopardize your ability to qualify to refinance your mortgage and sell your home by putting your mortgage underwater so that you owe more on your mortgage than your home is worth include:

• a decline in the value of your home.
• penalties and fees due to late or missing payments.
• a prepayment penalty on your current mortgage.

Things that can simultaneously jeopardize your ability to pay your mortgage on time, qualify for a refinance of your mortgage, and sell your home include:

• underfunded, poorly managed and unfinished home improvement projects - can increase your expenses and impair your ability to refinance your mortgage or sell your home.
• legal judgments liens - legal judgments can increase your expenses, impair your ability to refinance and prevent you from selling your home.
• divorce - unresolved divorce proceedings can increase your expenses, make it harder to qualify for a refinance and put your home ownership status in jeopardy.
• financial crisis - a financial crisis can negatively impact homeowners in many ways including causing employers to lay off large numbers of people, make mortgage lenders much more hesitant to lend and lead to a decline in home prices which can cause a large percentage of a country's homeowners to be underwater on their mortgages.

Some combinations of financial challenges may seem overwhelming. However, you can significantly reduce your exposure to mortgage risk by making conservative, smart mortgage decisions from the beginning.