Loan guaranteed by the U.S. Department of Veterans Affairs are popular among Veterans and members of the U.S. military. One major reason why is that VA loans can be used to purchase a home with no down payment required, and with no mortgage insurance required.
But what if, for a host of reasons, you can no longer afford the monthly payment on your VA loans?
Fortunately, there is hope if you are struggling to make your VA loan payments each month. By taking a proactive approach, you can avoid a default on your mortgage, and boost the odds that all will end alright.
The most important thing to do? Don’t ignore the problem.
1. Make that call: If your VA loan becomes unaffordable, make sure to call your mortgage servicer immediately. Your mortgage servicer is the company to which you send your mortgage payment each month. Your mortgage statement will include a customer service number to use.
When you call, explain that you’re struggling to make your monthly payments and that you’d be grateful for some assistance. It might seem like a difficult phone call to make. But, know that your mortgage lender doesn’t want you to miss payments any more than you do, and it certainly doesn’t want to see you lose your home in foreclosure.
Your lender would rather you make your mortgage payment each month. That’s one way the lenders make money. Your lender, then, may be more willing to help you than you might expect.
2. Will a modification help? There are several ways in which your lender can help you when you’re having trouble making payments.
First, your lender can reduce your interest rate, which will lower your monthly payment and make it more affordable.
Second, it can rework the terms of your loan, to make it more favorable for your current situation. If you are paying off a 15-year fixed-rate VA loan, for example, your lender can convert your mortgage into a 30-year loan, which spreads out your payments and lowers your monthly bill.
Third, your lender can suggest a temporary halt on your payments, perhaps for two or three months, to give you the time you need to resolve whatever financial issues have made your payments so difficult for you.
And, fourth, in the most extreme of cases, your lender can reduce your principal balance, the amount you owe on your loan, as a way to lower your payment. It’s rare for a lender to do this, but lenders sometimes prefer principal forgiveness over its worst case scenario — foreclosure of a home.
3. Prepare evidence of financial distress: Before a lender will agree to make changes to VA loan, it will want to see proof that you are working through a financial crisis. Your job is to provide that proof.
If you’ve been demoted at work to a lower salary, or had your hours reduced, have copies of your paycheck stubs from before and after the change which prove your drop in income.
If a medical condition has resulted in lost wages and big medical bills, have copies of statements from hospitals and medical providers ready to go.
If you or your spouse lost a job that used to provide a steady income stream, have a copy of the termination letter.
Be prepared, too, to show copies of your most recent bank statements, credit card bills and anything else that you can use to prove the financial struggle you’re enduring. The more evidence you can provide, the better your chances of receiving help from your lender.
4. Try counseling: VA offers financial counseling at a series of VA Regional Loan Centers across the country. Financial professionals at these centers are available to help you rework your budget, and to help you find monthly expenses you can reduce. The point of this assistance is to help VA borrowers avoid falling behind on their loan payments.
You can find a list of VA Regional Loan Centers here. You can also call 877-827-3702 to find a VA counselor near you.
Working with a counselor can help you craft the positive financial habits that can help you avoid future payment problems.
5. Short sale, deed in lieu of: If your lender cannot make a loan modification for you, consider selling your home through a short sale, or by requesting a deed in lieu of foreclosure from your lender.
In a short sale, your lender agrees to let you sell your home for less than your current mortgage balance. Because the price for home is lower than typical, short sales can help your home sell quickly. The goal with a short sale is to sell your home before you can fall farther behind on your mortgage.
In a deed in lieu of foreclosure, your lender agrees to take over ownership of your house without going through the lengthy foreclosure process. The benefit here is that you no longer have to worry about making mortgage payments. Your home is turned over to your lender, in full.
But whatever solution might work for you, do not ignore your financial challenges. The surest way to find relief is to contact your lender today.
Dan Rafter is a freelance writer with more than 20 years of experience covering financial topics. He has written for the Chicago Tribune, Washington Post, Consumers Digest, and several other publications.