updated 8/26/2007 3:34:27 PM ET 2007-08-26T19:34:27

If you are having a hard time making your monthly mortgage payments, head off the trouble quickly by reaching out to your lender rather than hiding from the situation.

Make sure to know the state of your finances before contacting your lender, said Ray Hooper, the education and housing director at credit counseling service CCCS of Greater Dallas. Determine how much income you’re bringing in each month, how much you’re paying in bills and where you can cut costs.

Hooper suggests seeking out a nonprofit counseling service to help put together this financial analysis for free. The counselor will also help to negotiate with your lender.

A list of approved housing counselors can be found on the U.S. Department of Housing and Urban Development’s web site. Avoid foreclosure prevention companies that charge a hefty fee upfront.

Next, contact your lender and have an idea what you need.

“Come up with some kind of an answer to the lender’s question of how you propose to pay off the loan eventually. You’re better off to come in with an initial proposal. At least you’ve opened the door in the negotiation,” said research economist James Gaines of The Real Estate Center at Texas A&M University

If you think that your financial strain won’t last long, ask the lender for forbearance, or postponement of payments, for a couple of months until you get back on your feet.

However, if the payments are too high or will be too high, ask the lender to extend the loan for another five years to reduce the monthly payment or adjust the interest rate if a reset is coming up.

If you can’t afford your loan and no workout is possible, try to avoid foreclosure with a short sale, or pre-foreclosure sale, of your house if the lender accepts this solution. The lender typically will want the sale to cover what you owe on the mortgage, but sometimes, it will accept a lesser amount.

“The lenders are in the situation now that they need to work out some kind of solution. They’re changing their policies and procedures to allow for workouts because they don’t want foreclosure either,” Hooper said.

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