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Foreclosure isn't the only option after falling into debt

You may not have ever thought you'd be in the position you're in now; your home isn't worth enough to sell it and pay off your mortgage, but paying on it is putting money into a home that isn't appraised high enough means you'll always fall short and be left in more debt. What can you do? If you can't afford payments any longer, you could be looking at foreclosure as an option, but it doesn't have to be the only one.

You can attempt to get a loan modification from the Home Affordable Modification Program, known as HAMP, but your debt-to-income ratio does have to be high to succeed in obtaining this loan. Another possible option is a short sale, which allows you to sell your home for less. You may not have to pay the difference if the bank approves of the sale.

For the Home Affordable Modification Program, you need a debt report from one of the main credit bureaus first. You will also need 30 days' worth of paystubs or a recent tax return. You'll have to fill out a hardship letter as well. If you qualify for the HAMP loan, you'll be able to call your lender and say why you can't make your payment in full. Then, you could be given a short-term payment reduction or be given a waiver on payments for a short time until you can pay again. It can take up to a year to get this modification, so if foreclosure is looming, it may not be the best option.

A short sale works by letting you sell your home for less than you owe. Your credit will be negatively affected, and you may have to pay off the difference in cost between the home's selling price and the agreed price with the lender, but that will vary depending on your contract.

Source: Bankrate, "Facing foreclosure? You have options," Tracey C. Velt, accessed July 10, 2015

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