7 Steps to Take if You're Having Trouble with Your Mortgage

It’s no secret that the cost of housing has soared in recent years, and Santa Cruz is no exception. With the median home price in the area consistently among the highest in the country, more and more homeowners are finding it increasingly tough to keep up with their mortgage payments.

In fact, the financial strain that many Americans are facing is not just a national issue—it's something that many in our own community are dealing with.

It’s no secret that the cost of housing has soared in recent years, and Santa Cruz is no exception. With the median home price in the area consistently among the highest in the country, more and more homeowners are finding it increasingly tough to keep up with their mortgage payments.

In fact, the financial strain that many Americans are facing is not just a national issue—it's something that many in our own community are dealing with.

National Trends Reflect the Pressure to Afford Housing Payments:

According to a recent nationwide survey by Redfin, nearly half of homeowners and renters in the U.S. have struggled at some point in 2023 to afford their housing payments. While these statistics may seem national in scope, the challenges they represent are deeply felt here in Santa Cruz, where home prices have reached record highs. In November 2024, Santa Cruz home prices were up 25.9% compared to last year, selling for a median price of $1.4 million.

The rising cost of housing is taking its toll, with some families making sacrifices just to make ends meet. A survey from Redfin found that to cover their housing costs, homeowners and renters have resorted to actions like selling personal belongings, taking on overtime shifts, canceling vacations, and even skipping meals. For many, the decision is not just about keeping the roof over their heads—it's about making tough choices between essentials like food, medical care, and transportation.

• According to Redfin’s national survey, survey, about 50% of homeowners and renters have reported struggling to afford their mortgage or rent at some point in 2024.
• A separate survey from Clever Real Estate found that 62% of homeowners sometimes struggle to make their mortgage payments on time in 2023.

If you’re one of the many Santa Cruz homeowners wondering what to do if you can’t pay your mortgage, it’s important to know that you’re not alone and there are steps you can take right now to manage your payments and avoid more serious consequences like foreclosure.

While it may feel like the weight of rising costs and interest rates is too much to bear, there are local solutions and financial strategies that can help you regain control of your finances. Here are 7 crucial steps you can take to help navigate this tough time and keep your home.

1. Contact Your Mortgage Lender Right Away

If you’ve missed a payment or are worried about making the next one, don’t wait for your lender to reach out to you. While they typically send a letter within 15 days, it’s best to get ahead of the situation and contact them first. Ignoring the problem won’t make it go away—and it could make things a lot worse.

Here’s why:

• If you don’t communicate with your lender, it becomes harder for them to trust you anymore, and they may not be willing to find a solution that considers your changed circumstances later on.
• Ignoring calls, letters, or notices can lead to more serious consequences, like foreclosure.

Many lenders have teams specifically dedicated to assisting homeowners facing difficult circumstances. They can help you explore different options that could work for your situation. One possibility to consider is a loan modification. This could lead to changing aspects like your interest rate or the duration of your loan, potentially making it easier for you to handle your payments. It’s especially useful if you’re dealing with a payment that feels out of reach after a big financial hit, like:

• Losing a loved one who contributed financially
• A long-term illness or disability that keeps you from working
• Divorce or separation
• A natural disaster
• A major increase in property taxes or other home-related expenses

To qualify for a loan modification, you’ll need to show proof of your financial hardship. This usually means sharing:

• Your income and expense documents (pay stubs, tax returns, or bank statements)
• Bills and other expenses, like medical costs

If Fannie Mae or Freddie Mac backs your home loan, you might even be eligible for the Flex Modification program, designed to help homeowners like you. In some cases, your lender might even be willing to reduce the balance of your loan, which would lower your monthly payments. This is less common, but it’s worth asking about if you’re struggling.

2. Forbearance

If you’re going through a tough financial situation and struggling to keep up with your mortgage payments, reaching out to your lender for a forbearance agreement could be a good idea. Depending on the lender, they might offer you a chance to pause or lower your payments for a particular time—often up to 12 months.

While this is happening, there's a good chance your lender won't kick off the foreclosure process, so you can breathe a little easier and not worry about losing your home right away. Remember that once that forbearance period is up, you’ll still need to handle any missed or late payments. You may have to pay those back all at once or set up a repayment plan to catch up.

3. Refinance to Change Your Interest Rate Terms

Refinancing could be a wise choice if you’re approaching the end of your mortgage and are interested in adjusting your payments. Switching to an adjustable-rate mortgage (ARM) might reduce your monthly payments, especially since you’re almost finished paying off the principal. By now, a big chunk of your payments is probably going towards building equity, so refinancing to an ARM could provide some immediate relief with those lower payments. Remember that while this might help your cash flow in the short run, it could result in higher payments since interest rates can fluctuate.

On the flip side, if you’re currently in an ARM, refinancing to a fixed-rate mortgage could stabilize your payments. Although this won’t necessarily slash your current payments, it would shield you from future increases, giving you more certainty and peace of mind as you move forward.

4. Lower recurrent expenditures

If you can manage your mortgage payments but struggle with homeowners’ insurance, property taxes, or other expenses, it’s time to take a fresh look at where your money is going. There are ways to lower these costs; a little effort now could make a big difference in your monthly budget. Here are a few options to consider:

• Homeowners insurance: Shop around. Comparing different providers may help you find similar coverage for a lower price.
• Property taxes: You might qualify for a property tax abatement, especially if you’re a senior. Check with your local tax authority to see what options are available in your area.
• HOA dues: Reaching out early can also help prevent late fees, legal action, or a negative impact on your credit, as many associations prefer to work with homeowners who are proactive about resolving their debts. Many HOAs are willing to set up payment plans or offer temporary relief.
• Utility bills: Consider contacting your utility providers to inquire about potential assistance programs they may offer, such as reduced payment plans or discounts based on your financial situation. Depending on your state, household size, and income, you might also qualify for help through the Low Income Home Energy Assistance Program (LIHEAP).

5. Rent out the property for extra income

You could think about temporarily staying with a family member or a friend, freeing up your home for tenants. In California, you don't need a special license to become a landlord, but the rules can change depending on where your property is located—each city or county might have its own requirements. If you prefer to engage a property management firm, though, they do need to be licensed.

6. Seek help from family and friends

It might feel a little awkward, but reaching out to your family and friends for support could make a big difference. You might be surprised at how willing they are to help.

Here’s how you can approach it:

• Be clear and direct – Open up to those close to you about your current challenges. They might be willing to help, whether it’s through a one-time contribution or a quick loan. Their support can really lighten your load when you’re in a pinch.
• Set clear terms – If you’re borrowing money, agree on specific repayment plans and make sure everyone is on the same page. Keeping the terms clear can help avoid misunderstandings later.
• Keep communication open – Regular updates on your progress can help maintain trust and prevent strain on relationships.

While borrowing from family or friends isn’t a long-term fix, it can help you stay afloat during tough times and prevent the worst-case scenario, like foreclosure. With their support, you can give yourself some breathing room as you work through your financial challenges.

7. Downsize or sell your home.

This can ease your financial burden and allow you to find a more manageable living situation. Downsizing means moving to a smaller home or somewhere less expensive, which can lower your monthly expenses and free up money. Selling your property allows you to pay off and reduce your debt, giving you a fresh start financially.

Both options can provide a way out of financial stress, allow you to breathe easier, and provide a comfortable living environment. If you decide to take this route, consider these:

• Homes for sale in Soquel – Soquel is a quieter, more suburban area, and historically it has had more affordable housing compared to downtown Santa Cruz.
• Aptos Homes for sale – Aptos has areas that can be pricey (especially coastal properties), but there are inland areas that are more affordable. These include properties that are not directly on the beach but still offer the suburban or rural charm of the area.
• Felton homes for sale – Felton offers relatively affordable housing compared to the main city of Santa Cruz, especially for smaller homes or cabins. Its nearness to Henry Cowell Redwoods State Park gives it a unique appeal for those who want to live close to nature. Like other parts of the mountains, it's less urbanized and can be more affordable, but still, prices have been climbing in recent years.
• Scotts Valley homes for sale – Scotts Valley has some more affordable housing compared to downtown Santa Cruz, but parts of it, particularly closer to the freeway or with more expansive homes, can still be pricey. It's considered more suburban and can have a mix of smaller homes, townhouses, and condos, which appeal to downsizers. Housing prices here have generally been more affordable than coastal areas but are increasing.

Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low-stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com.