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real estate

What to Do If Your Home Is on the Line

if your house payments are rising.

Even if you're a fiscally conservative homeowner, you may be feeling the pressure of high housing costs, particularly if you have an adjustable-rate mortgage with a rate that's headed up or if your income has taken a hit.

Spot trouble early. Assess where you stand, especially if your house payments are rising. For advice on cutting back your spending or increasing your income, consult a fee-only financial planner or a nonprofit credit counselor, such as one certified by the U.S. Department of Housing and Urban Development. Credit-counseling services should be free or low-cost -- say, less than $50 for a session.

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Try a refi. Rates on 30-year fixed-rate mortgages are still attractive and are generally lower than fully indexed rates on adjustable-rate loans. If you can't refinance because your financial prospects are poor, you have no equity in the home or you're looking at a large prepayment penalty, you may want to try selling your home yourself. If you can't afford a full-service agent, try one that offers a limited package of services for a flat fee. Doing it yourself is no easy task -- you have to price the property aggressively, make yourself and your home available, and close the deal. (For tips, see Get the Most From Your Home Sale.)

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Take advantage of mortgage relief, if it's available. In Massachusetts, for example, the governor mandated that homeowners in financial trouble be allowed to request extra time to avoid foreclosure; their cases will be considered individually. In California, legislators have proposed creating a mortgage pool to assist first-time homeowners in trouble. Fannie Mae and Freddie Mac will soon introduce their HomeStay program, which is specifically designed for borrowers with adjustable-rate mortgages who are at risk for payment shock.

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Head off foreclosure. As soon as you think you will miss a mortgage payment, call your lender to discuss your options. Besides refinancing, those may include a forbearance (you temporarily pay nothing or only a minimum amount, making up the payments either over time or at the end of the loan), or a loan modification (the lender temporarily adjusts the interest rate). The better your credit score and employment history, the more receptive the lender will be. But note that some lenders may not be able to change the terms of your loan until you're at least 30 days delinquent, and sometimes as many as 120 days past due.

If all else fails, you could try to negotiate a short sale. In that case, the lender agrees to cancel your debt in exchange for the proceeds from the sale of your home. As long as you're an owner-occupant, not an unhappy investor, lenders are likely to be receptive. Plus, they want to avoid the hassle and expense of foreclosure.

A real estate agent can help you negotiate the deal. (Call local agencies and ask for an agent with experience or training in short sales, or visit www.shortsalerelief.com..) You have a limited window of opportunity: Most lenders allow only three months' delinquency before they issue a formal notice of foreclosure, and state law mandates how fast the process moves after that.

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