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How to break the late rent, missed mortgage payment cycle

As many as 35 million Americans are facing the possibility of eviction due to an inability to make housing payments on time. In some states, such as Mississippi, Florida, and West Virginia, the proportion of renters facing the possibility of eviction exceeded 50% earlier this year.

If you’re among the millions of Americans caught in the late rent payment or mortgage cycle, you should be aware of the eviction moratorium and mortgage payment assistance programs enacted at the federal, state, and local levels. But you should also formulate a plan, and take concrete steps to free yourself from financial and housing uncertainty.

Here’s a step-by-step plan to keep yourself in your home – for good: 

Starts by reviewing your budget 

As a general rule, you should never spend more than 30% of your household income on housing, including utilities or mortgage insurance and repairs. The government defines those spending over 30% of income on housing as “cost burdened.”

The logical first step in your housing security plan involves assessing your budget: Are you spending more than 30% of your gross income on housing? For example, a household earning $6,000 monthly gross income shouldn’t spend more than approximately $2,000 per month on housing costs. In the short-term, you can try to cut other areas of your budget to make-up the shortfall, and in a financial emergency, you absolutely should. But long-term, your housing costs shouldn’t exceed that 30% figure because you’re likely to compromise other important financial needs, such as retirement and emergency savings and debt repayment.  

Reduce housing costs or increase income 

Increasing income is a straightforward solution for bringing your housing costs under that 30% mark. While that’s easier said than done, especially in a recession, consider whether there are opportunities for financial growth that can help you better manage costs. If not, then it’s time to consider ways to reduce your housing costs. 

The Covid-19 crisis has combined with historically low interest rates to create the perfect mortgage refinancing opportunity. If you intend to remain in your present home for five to ten years or longer, it can make sense to consider refinancing your home at a lower interest rate to reduce your monthly payment. If you currently have a 15-year mortgage, you can also consider extending the term to 30 years.

Keep in mind that refinancing carries costs, and you should use a refinancing calculator or speak with a  realtor or financial professional to assess whether it makes sense for you. 

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Similarly, renters find themselves in an ideal climate to re-negotiate their lease. As rental prices drop markedly in many major metros areas, landlords are offering concessions and are likelier to negotiate on rent. If your lease is up for renewal soon, a good starting point for negotiations could be one month of free rent, or approximately 10% off your current payment. Even if your rent isn’t due, cash-strapped renters impacted by Covid-19 should consider writing their landlords about rent concessions. 

What to do if you are at risk of losing a home now

If you’re facing a housing crisis now, you face better odds than usual of being able to remain in your home. That’s because the CDC passed an eviction moratorium through the end of the year prohibiting landlords from evicting you for being unable to pay rent. Keep in mind, you’d still owe any back rent due at the time the moratorium expires.  

Many states and cities have also enacted their own eviction moratoriums, many which offer more protections than the CDC’s federal moratorium. In some cities, landlords cannot charge late fees. Other cities, such as Los Angeles and Philadelphia, have enacted renters assistance programs to help pay rent for those impacted by Covid. And it’s possible that due to the resurgence in coronavirus cases, these protections may be extended into 2021. 

Similarly, owners of homes backed by federal entities such as Fannie Mae, Freddie Mac, and others will enjoy foreclosure protections at least through the end of the year, and can request forbearance on payment of up to 180 days. And like renters’ programs, many states and cities have passed additional homeowner protections which may be to your advantage. 

These programs will eventually expire, so it’s important to prepare now for their end. How will you manage your payments if you’re still facing financial hardship? Will you be able to sell your home, move into a cheaper apartment, or live with friends or family? Do you have emergency savings that you can use to remain in your home? What other resources are at your disposal? Check your area’s housing resources to access help now. 

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