Millions at Risk of Falling into the Mortgage Gap

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Millions at Risk of Falling into the Mortgage GapIf you lost your job, how long could you continue to pay your mortgage? For two out of three homeowners, the answer is: Not as long as it would likely take to find a new position.

According to a new survey from insurance and financial services firm Country Financial, 68% of homeowners say if they lost their jobs, they wouldn't be able to make mortgage payments for more than nine months, and many would fall by the wayside before that. While nine months is enough time to get a baby ready to make its world debut, it's often not enough time to find a new employer: Unemployment durations are averaging almost 10 months -- and that, of course, is just the average. Many Americans have been unemployed for considerably longer.

(For those looking for a small bright spot in the statistics, the median unemployment length is closer to 21 weeks -- meaning half of those who lose their jobs find new ones in less than five months. But then there's the other half ....)

The "mortgage gap" is more pronounced for some, according to Country Financial's survey. Nearly one-third (31%) say they would be able to maintain payments for just three to six months. More than a quarter (27%) would be able to cover their payments for less than three months. This divide might be why 59% of homeowners now question whether buying a house is the best investment a family can make.

Strategies to Stay Ahead of the Economy

"The housing market decline and high unemployment has put a strain on everyone," said Keith Brannan, vice president of financial security planning in a prepared statement. "Although there's no quick fix, having a financial safety net can help. If possible, start an emergency fund to offset those unexpected life changes like unemployment. If you're concerned about your mortgage, seeking professional advice to reprioritize your income can help you protect your current possessions and budget for future expenses."

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Pay yourself first.
Set up direct deposit from your paycheck or checking account into a dedicated savings account, says Greg McBride, senior financial analyst with Bankrate.com, which offers a list of the top-yielding nationally-available accounts.

Track your monthly spending against your monthly net income
. Transfer any surplus at month's-end into that dedicated savings account. Look closely at your expenses to identify opportunities to reduce or eliminate expenses to further pad your savings cushion. Be disciplined enough to devote any pay raises, bonuses, or windfalls to this savings reserve, he adds.

Don't be discouraged when every time you squirrel away a little bit of money, an unplanned expense comes along and wipes it out. "This is proof that it is working. With direct deposit, you're only one paycheck away from starting to replenish your savings cushion," says McBride.

Also, tap the equity in your home now, while you still have a job -- and remove it from the house, says Jay Tyner, president of Semmax Financial Group. "When you lose your job, you can't tap equity because what banker is going to give you a loan while [you're] unemployed? It is better to have and not need, than need and not have," "The key here is not to get a line of equity and then buy a new boat."

Refinance now while the rates are at historic lows to decrease your monthly payments.

What to Do If You're Falling Into the Mortgage Gap

Contact your mortgage company. Ask about the various options available, among them: forbearance, reinstatement, advance (loan to repay past due amount), repayment plan, (pay past due amount over a specified period of time) or loan modification in you are struggling to pay your mortgage, suggests Harrine Freeman, author of How to Get Out of Debt: Get an "A" Credit Rating for Free.

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Many lenders are willing to work with homeowners in ways they wouldn't have in the past. "Avoidance just allows the problem to become more severe, and the lender can't help you if they do not know what the problem is," says Frank Braddock, a certified financial planner with JHS Capital Advisors.

Sell. Sell as much stuff as you can on Craigslist or eBay that you no longer need or no longer use: furs, jewelry or anything else you can to get cash. Consider selling your car and carpooling or use public transportation, or trade down to a cheaper car if you are still making payments, says Freeman.

Rent. Rent out a room in your home to generate extra income to help pay your mortgage. Or, there are more creative ways to turn your home into an income property.

Seek Help. Contact government, social programs or nonprofit agencies -- the National Council of State Housing Agencies, Home Affordable Modification Program, Hope Now, among others -- to find out what options are available to help you stay in your home.

Slash Spending. Try to cut your monthly expenses by 50%, says Freeman. Start by canceling your cable and landline service, getting the cheapest plan you can for your cell phone and Internet service, and increasing insurance deductibles to reduce monthly premiums. If your don't already having one, get a programmable thermostat and keep the heat at 68 degrees when you're home, lower when you aren't. And don't spend money on anything except food to cook at home and maintenance for your car unless it is absolutely necessary.
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