Extension News

Keeping a Roof Overhead When Your Income Drops


By Cynthia Fletcher
Family Resource Management Specialist
Iowa State University Extension

Housing costs are a top concern if you rank your bills in priority order. When you are under the financial stress of reduced or lost income, one of the largest expenses is housing. Housing expenses include mortgage or rent payments, insurance, taxes, household maintenance and repair, utility bills, furnishings and cleaning supplies.

When your income drops, careful planning can help you avoid the loss of your house.

Mortgage Payments
With reduced or lost income, you quickly feel the stress of a sizable mortgage payment. If your income loss will be for only a few months, you may be able to cut back on other expenses to meet mortgage payments.

Important: If you miss a mortgage payment, you have defaulted on your contract and your lender can begin foreclosure on your home.

If meeting your mortgage payment appears impossible, contact your lender immediately before you miss a payment. You may be able to skip a payment or arrange a lower payment. Go in person and take a new spending plan that fits your reduced income.

Most lenders will avoid the time and cost involved in a foreclosure if an alternative can be agreed upon. If your loss of income is going to last a long time or be permanent, consider other options. You do not have to live under the stress and strain of meeting mortgage payments that are too high. Here are some options:

• Take in a boarder and use the money toward mortgage payments.

• Rent your house to someone else and rent less costly housing for yourself. (Check the effect this will have on your taxes and changes needed in your insurance coverage.)

• Sell your house and buy or rent less costly housing or move in with relatives or friends. Offer to share some of the housing costs.

• Deed your house back to the lender. You may not lose much. For example, if you have been paying on a 30-year mortgage for 10 years, you have probably paid only about 10 percent of the principle due. If you choose deeding the house back to the lender in lieu of foreclosure, and the house has decreased in value, you are still responsible for the total amount of the loan and must pay the lender the difference. Leaving the house may be less stressful than staying and not having enough money for food or other necessities.

Insurance Payments
Homeowner’s insurance protects you in case of loss or damage to property. Make sure your property is insured. If you cannot make an insurance payment, contact your agent or the company. There may be some leeway (10- to 30-day “grace period”) for a late premium payment. Not paying insurance on your mortgaged home is considered defaulting on the mortgage.

Shopping around for lower priced property insurance from a licensed insurer can save you money. Contact the Iowa Insurance Division and ask for a list showing typical prices charged by different licensed companies. Call at least three of the lowest-priced insurers to learn what they would charge for the coverage you need. Make sure you purchase enough coverage to replace the house and contents. Make certain the new policy is in effect before dropping the old one.

If your current company offers the least expensive coverage, talk to your agent. Explain your situation and discuss different payment plans. You may be charged smaller premiums if you:

• Change to a monthly, quarterly or semiannual payment plan with the same coverage. There may be a service charge for making a smaller payment. Check the total yearly amount difference and select the payment plan that will give you the most savings and still fit into your spending plan.

• Increase the deductible.

• Install safety/security alarm systems.

• Examine coverage on other buildings and structures on your property.

• Change to a more basic coverage.

• Qualify for discounts if all insurance (house and auto) is with the same company.

Real Estate Taxes
If you are unable to pay taxes, contact your county treasurer to learn how delinquent property taxes are handled. Interest accumulates on unpaid taxes. You will have to pay this interest or it becomes a lien on your property just like the unpaid taxes. You will receive notice of any actions taken as a result of nonpayment of taxes. Take these notices seriously. Eventually, unpaid taxes will result in the sale of your property through auction.

Careful planning can help you make informed decisions and reduce your stress.

This release is part of an article from the August 2009 issue of Acreage Living.

Contacts :

Cynthia Fletcher, Human Development & Family Studies, (515) 294-8521, cynthia@iastate.edu

Lynette Spicer, Extension Communications, (515) 294-1327, lspicer@iastate.edu