With millions of Americans at risk of default and foreclosure on their mortgages, Simon in Florida has a question that’s on a lot of readers' minds. What happens if you can only make a partial mortgage payment?
What will happen if I only make a portion (half) of my monthly payment to the bank during this time of economic crisis? Will the bank foreclose my home? After all, I’m paying not the full amount, but it’s the only amount that I can send.
— Simon,Cape Coral, Fla.
Most lenders won’t take partial payment — so you’ll likely get the check back in the mail.
But you don't go straight to foreclosure by missing one payment. Foreclosure happens in stages: The first is when the bank decides you’ve officially defaulted on your loan. That usually means you’ve missed more than one payment.
Even if you’ve gotten a notice of default, there are steps you can take to avoid foreclosure. One of the most important — and difficult — decisions is whether you think you can handle the mortgage over the long term with help from the lender. In some cases, that may not be possible and the best solution is to sell your home before the foreclosure process gets started. That way you avoid having the foreclosure on your record and damaging your ability to get credit in the future.
If you’ve got one of those loans that starts at a rate you can afford and then jumps to a level you can’t you may qualify for an interest rate freeze. It’s very difficult to generalize. There are guidelines for lenders, but they’re all voluntary. Each lender is looking at late loans on a case-by-case basis.
The most important thing to do is contact the lender as soon as possible to see if they’ll agree to an alternative payment plan. In some cases, they’ll offer a plan to make up the payments you’ve missed. Or they may agree to change the terms of your loan to something more affordable.
With so many people falling behind, lenders are swamped with calls. So you may want get in touch with a housing or credit counselor who can help you through the process.
You can try the Hope Now Alliance at 1-888-995-HOPE. If you’d like to meet with a counselor in person, go to the National Foundation for Credit Counseling’s Web site to find an office. You can also call the NFCC’s Homeowner Crisis Resource Center at 866-557-2227 or visit their Web site.
Make sure you work with someone who is HUD-approved or accredited by the NFCC. With so many homeowners having trouble, crooks are coming out of the woodwork with a variety of “rescue” scams. (Foreclosure notices are public records, so it’s easy enough to find out who's getting into trouble.)
In some cases, these scammers say they’re going to help you but are really trying to buy your house on the cheap — or trick you into signing it over to them. Others will charge a big fee to “fix” the problem — by filing bogus documents and showing you fake papers that seem to show you’ve solved the problem.
Some scammers will offer to buy your house from you and let you rent it back until you can afford to buy it back. If you miss a payment the deal’s canceled and you lose everything. If you make the payments, the buyback price may be higher than the house is worth.
For more information on avoiding foreclosure, including contact numbers for lenders, check the Federal Housing Administration’s Web site.
I was discharged on my debts in bankruptcy but had a car loan which was my major bill that was always paid on time for two years. Now I need to rebuild my score. I was told that getting a secured credit card that reports to credit bureaus was a good start. Do you agree?
— Mary, Hephzibah, Ga.
Yes. One of the most important parts of a good credit record is a solid payment history on more than one loan or credit card. That can be a problem if you’re just starting out — or your credit history is so bad no one will give you a loan or a credit card.
A secured card is an account that includes a deposit you make up front, usually equal to your credit limit, which should pay you interest like a savings account. That may sound like the debit card you use to get money from your checking account, but there are a few important differences.
With a debit card, the money to pay the transaction is taken out of your account immediately. With a secured credit card, the lender extends you credit and you’re billed at the end of the month — just like an unsecured card. But because you’ve paid the lender a deposit up front, there’s less risk you won’t pay off your balance.
You’ll also owe interest on outstanding balances — just like an unsecured credit card. And the terms vary widely from one lender to the next. Shop around: Some of these cards have such high fees they’ll take a big bite out of your deposit before you start using the card. Watch out for other onerous terms — like a mandatory a payment “insurance” policy, for example.
You may also want to try opening a credit card with a retailer. Some stores are quicker to give you a credit card to promote their brand; the hope is you’ll to shop more at their stores and they’ll make a little more money by charging interest on everything you buy.
Of course, signing up for more cards isn’t a good idea if you run balances on them — which will soon get you back on the bad credit track you’re trying to get avoid. So sign up one at a time, see how it goes and don’t take on more cards until you’ve begun building that solid track record.
For more on how to get and keep a good credit store, check out the Web site for Fair Isaac Corporation, the "FICO" behind the scores.
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