How to Face Rising Florida Mortgage Payments, Housing Costs

Traditionally, lenders have refused borrowers whose debt obligations exceeded 36 percent of their gross monthly income; during the housing boom of 2001-2006, however, many lenders accepted debt-to-income ratios of 50 percent or more.

The results? Unexpected financial burdens for Florida mortgage borrowers that didn’t realize interest rates would reset down the line.

“There’s a big difference between how much a lender can qualify you for and how much you can actually afford,” says Don Sprague, a financial planner and mortgage broker in Boulder.

Of course, stretching the limits of affordability wasn’t a problem when Florida mortgage rates were plummeting and home prices were rising. At that time, owners who had trouble making payments could easily refinance or unload their home for a big profit. That’s no longer the case.

As lenders tighten standards and those that took out a home equity line of credit a few years ago see their payments shoot up by hundreds of dollars a month, another $1.5 trillion in mortgage debt is up for readjustment this year, according to the Mortgage Bankers Association.

With that in mind, consider the following strategies to avoid having your home wreck your finances.Size up your situation
Is your housing stress the result of a short-term problem that could reverse itself soon, such as a layoff or an illness that triggered unwieldy health-care costs?

Or does the strain result from a more fundamental problem, such as over-optimism about the Florida real estate market or miscalculation of what you could afford based on your income? The answer will dictate your solution.

If the stress is temporary …
If it’s a temporary crunch, the solution may be as simple as rethinking your spending. Some lenders make clients scour six months of bank and credit-card statements for fat-trimming possibilities.

Some common items to cut: health-club memberships, vacations and gift-giving largesse. Got a tax refund this year? Try reducing your withholding so you’ll take home more money in your paycheck each month.

In fact, finding a few extra hundred dollars in your budget can go a long way even if your financial situation isn’t likely to change soon.

If you need a permanent fix …
When the problem isn’t temporary and you’ve already trimmed your budget thinner than a slice of prosciutto, you may need to consider more drastic moves.

If you have both a variable-rate home equity line of credit and a primary mortgage, you may save hundreds of dollars a month by Florida mortgage refinancing into one new fixed-rate loan that ropes in both balances.

A $200,000 fixed-rate mortgage at 6 percent, plus a $100,000 HELOC at 9.25 percent, works out to total monthly costs of about $2,230.

Roll that entire $300,000 into a 30-year fixed-rate home loan at today’s rates and your payment will be $1,800 or so, a savings of about $450 a month.

That will quickly offset the cost of the refi, typically a few thousand dollars. You should also consider refinancing if your credit has improved or you simply didn’t get a good deal the first time around.

If you currently have a 15-year Florida mortgage loan or are more than 10 years into a 30-year loan, stretching out the payments will save you money now, though you’ll pay more interest in the long run.

Ask for a lending hand
If refinancing isn’t a solution and you think you might not be able to make your monthly payment, call your lender immediately and ask about a temporary reduced payment schedule, known as a forbearance agreement.

“The last thing a lender wants is to foreclose; they run the risk of losing money,” says Erica Sandberg, a spokeswoman for the Consumer Credit Counseling Service of San Francisco. Keep in mind that your lender isn’t obliged to give you a break. But you have a good shot if you can prove financial need and have a plan to get back on track. And you’ll avoid a ding on your credit score.

Move on
When no amount of budgeting and strategizing will alleviate your housing stress, it’s time to consider moving on. The good news is that if you have owned your home for several years, you may still be able to sell at a profit.

SOURCE: Money Magazine