Nearly half of all homeowners are confused on what types of federal COVID-19 mortgage relief is available through their mortgage servicers and how those options work, according to a survey published by data and consulting firm Stratmor Group. This is not surprising given all the headlines coming out of Washington, D.C. due to the crisis.
However, this fog of information is only the tip of the iceberg. In general, consumer education on credit health, financial awareness, how to be debt-free, and the ability to repay a home loan for those who are economically distressed is lacking. An abundance of online resources exists, but the steps you may need to take can still be perplexing.
Here’s some helpful tips to keep your finances in check and on track:
- Keep track of your COVID-19 financial relief. No matter what the loan is for (auto, home, credit, etc.), you’ll want to track conversations and adjustments made on any loan you discuss. You’ll want to reference who you’ve talked to and what was discussed as you work through adjustments and the terms. Ask them to send you confirmation of a change of terms if possible. This way any future questions can be easily recalled and confirmed with documentation and put into proper context.
- Do everything possible to avoid delinquency and default. If you think you’ll be going delinquent on any type of debt payment, call your creditor and have an open conversation immediately. Lenders may offer flexibility or negotiate. Whether it’s a medical bill or credit card bill, some creditors may respond by offering better terms. This isn’t always the case, but you may be surprised at how willing they are to work with you. In the end, a potential delinquency can lead to default, which can turn into a call from a collections department.
- Work to manage and improve your credit score. Plug in your personal monthly budget and credit (long-term loans and credit cards) on a spreadsheet and cross-reference it with the five categories that move your credit score — payment history, amounts owed, length of credit history, new credit, and credit mixture. If you open a new credit account, make sure it is a worthwhile decision. On the other hand, don’t necessarily close a credit account that you’re finished with. Keeping it open usually does not hurt as long as your debt-to-income picture gets better over time.
- Create or refine your monthly budget. Be informed about your household when it comes to income versus spending. If you feel you can bring in extra income with a small side job, try it. If not, try saying “no” to some expenses or “hold off for now” on others. Experiment with three months of cutting out wants and focus on needs. Change your shopping habits, namely the places you go to find what you need and want in food, clothes, furniture, electronics, and more. Find cheaper alternatives to usual expenses by shopping around, such as car insurance or sharing living expenses by having a roommate instead of living by yourself. If you own a home, rent out a room to someone you trust. Ask for discounts from businesses/sellers if you’re purchasing an expensive item. If appropriate, perhaps barter your services. Remember not to rely on your savings account to support your lifestyle, nor your credit cards. Try to become as debt-free as possible. After a few months of changing your behavior, you will find what you like, don’t like, or maybe didn’t even care about. The satisfaction, discipline and money saved will show you many benefits.
- See a credit counselor or attend homebuyer education. Usually these types of counseling and courses look good to lenders on your record. Combined with stable payment history, they show you are making an effort to improve your credit score and ability to pay a monthly mortgage. You may feel completely confident in your financial abilities or you may struggle with debt. Whatever side of the spectrum you’re on, do your research and learn what steps can help you move forward.
- Map out and keep track of your Debt-to-Income ratio (DTI). Keeping track of your DTI can help you see where adjustments need to be made in your financial decisions. As rent continues to rise, it might actually make sense to consider buying a home. That may be a lot to consider right now, but in the long run it could be more affordable. You’ll need to understand how much house you can afford, what kind of down payment would be needed and where rates are but helpful calculators exist online to help figure these totals. Your DTI shouldn’t be more than 43 percent of your monthly income before taxes. You’ll want to shoot for lower, but ultimately once you calculate this you can see where you can make adjustments and begin preparing for possibly buying a home and getting rid of increasing rent.
- For homeowners, see if it’s worth refinancing. There are different “refis” out there, including lowering your monthly payment, lowering your number of payment months/years on the mortgage, and cash-out refis (money directly in your hand from your home’s equity). Ultra-low interest rates are causing many to look into this option and pull the trigger. Is it right for you? It very well could be, given the economic uncertainty that COVID-19 has thrown us into for the time being.
Regardless of the impact COVID-19 has made on your finances, take steps to educate yourself and learn what can move you to more secure financial future.