It’s even worse for borrowers with scuffed credit and adjustable-rate mortgages. More than 14 percent of them were behind on their payments.

But the worst is yet to come according to the MBA. The association predicts that least $300 billion in subprime ARMs will reset this year to higher interest rates, and those borrowers face higher payments and a harder time refinancing.

The good news is lenders don’t really want to or like foreclosing on homes. After all, that would mean no money for them. Plus they would have to take up the burden of reselling the house, so it’s in their best interest to work with you. In most cases they can work out new terms, or help you to get caught up.

You make the call

However, you are going to have to take that first step and call them. A lot of people are usually hesitant to take this first step out of fear and embarrassment, but according to several experts it’s what trouble homeowners need to do.

“The single biggest mistake borrowers make when they fall behind on their mortgage is not contacting their lender,” David Bach, author The Automatic Millionaire wrote in a recent article. “As soon as you realize you have a problem, you’ve got to make that call.”

By making that call your lender can come up with several ways you can keep the house or ways to give up the house without foreclosing. It all depends on your financial situation.

Ways to keep the house includes:

• Paying less than the mortgage’s full payment for a temporary period.
• Paying the outstanding amount in installments over a period of time.
• Paying the lender the total outstanding amount in one lump sum by a specific  date.
• Altering the terms of the loan. For example refinance from a 15-year term to a 30 year term for smaller payments.
• The ways to get out of the house if you are having problems selling include:
• Short sale, which is when you sell the house for less than the amount you owe, but the lender agrees to it and consider it a settlement.
• You voluntarily transfer the property to the lender. It would still affect your credit rating, but not as much as a foreclosure would.
• Allowing a qualified buyer to take over your mortgage debt and pay the mortgage payments.

If you have an FHA loan, you may have additional options available to you. For example, HUD provides interest-free loans to repay past-due interest and escrow amounts.

If you have a lot of equity built up think about re-financing with an interest-only mortgage. However, be aware that this is only a short term solution and you will have to shop around for the best rate. Websites like Credit and Debt allow you to view and compare offers from different lenders.

The experts also advice you look at refinancing if have a subprime or ARM and suspect you are going to have problems meeting monthly payments in the future.

The bank will usually contact you 45 days before your mortgage resets, but don’t wait for them to call you. You call them about 120 to 180 days in advance to get working on your options.

Yes, dealing with a problem mortgage and saving your home is going to take putting aside your pride and calling your lender. Most times they can help you keep the house.

If that fails, still don’t give up. Continue to take action by calling the Homeownership Preservation Foundation. It’s a HUD-certified, nonprofit organization that offers advice and resources to help homeowners with financial challenges. Reach out to them by calling 1-888-995-HOPE.

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Most experts say that with a strong record of paying bills on time, a documented, steady income, you should be able to borrow easily and at a low rate.

However if you find that you don’t meet any of these standards and your FICO score is below 620, don’t despair. You can still get a loan. It will just be harder. You will probably need a down payment or make some tough decisions, such as scaling back your expectations and buying a less-expensive house.

It pays to shop around

Either way – whether you met all the qualifications to be considered a “prime customer” by the banks or not, the best thing you can do for yourself is shop around.

As the Federal Reserve Board pointed out shopping around for a home loan or mortgage will help you to get the best financing deal.

“A mortgage–whether it’s a home purchase, a refinancing, or a home equity loan–is a product, just like a car, so the price and terms may be negotiable,” its brochure states. “You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.”

The local newspaper and the Internet are good places to start. You can usually find information both on interest rates and on points for online lenders like E-Loan and Credit and Debt. The Federal Reserve Board advised checking the newspaper daily because rates and points change daily.

The experts also advised that you negotiate and don’t be afraid because lenders and brokers offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications.

Understand the cost and terms

Request that the lender or broker write down all the costs associated with the loan and if they will waive or reduce one or more of its fees or agree to a lower rate or fewer points. Look out to make sure that while the lender lowers one fee, they don’t raise another fee or the points. This is when it comes in handy to have other comparisons to show the lender.

Once you are satisfied with the terms get it in writing. Obtain a written agreement with the rate you have agreed upon, how long the agreement would last, and the number of points to be paid. This is usually called a lock-in. A refundable fee maybe charged for this service.

Also it may be in your best interest to have a down payment. In fact in today’s environment, most lenders are going to require it. It shows commitment, which is reassuring to lenders.

Finally when going for a mortgage stick with the traditional 30-year, fixed rate mortgage because it’s the safest and most economical product. A 40- and 50-year loan cost too much, and ARMs are risky, especially with raising rates.

To sum up – despite the condition of today’s market, you can still get a good affordable mortgage. You are just going to have to shop around, negotiate and compromise.

Possibly Related Posts:

• What to do with a Problem Loan
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“I never knew when I was going to get approved or rejected,” DaMarcus said. “Most times, I was rejected. I knew I had to fix my credit, I just didn’t know how or if it was even possible.”

Yes it’s possible, according to several bankers, lawyers and financial experts. They say by taking an aggressive approach a person can fix his or her credit within two years.

Keep your spending in check

The trick is avoid future financial problems, and sticking to a budget. The WaMu personal planning center suggest spending at least two months writing down every expenditure, and at the end of each month compare your total expenses with your income.

“If you’re overspending, you have to cut back or find more income,” the center advised. “As best you can, plan how you’ll spend your money each month.”

Know what’s in your credit report

You are also going to need to order a copy of your credit report to determine what’s inaccurate or out of date, and then request that the credit bureaus fix the information. Everyone is allowed at least one free credit report each year. To order your free report, go to www.annualcreditreport.com, and either order your report directly or download a form to mail in your request. You can also call 877-322-8228.

You are also entitled to one free copy of your credit report each year under any of the following circumstances:

• You’ve been denied credit because of information in your credit report and you request a copy within 60 days of being denied credit.
• You’re unemployed and looking for work.
• You receive public assistance.
• You believe your file contains errors due to fraud or you are (or you think you are) a victim of identity theft.
• You’ve been denied employment (or another adverse employment decision has been made) based in whole or in part on information contained in a credit report.
• Your report has been revised based upon an investigation you requested.

If you’ve already ordered your free report for the year and don’t fit into any of the six circumstances, you can still order a report from websites like freecreditreport.com.

Look over the report and try to bolster the negative information with some positive ones. Send copies of recent statements and copies of canceled checks to credit bureaus to show you pay on time for accounts that might be missing from the report. Also have your employment history, place of residence, phone number and date of birth added to your report. It could help to show a sense of stability.

Pay as you go

Another way to accelerate the rebuilding process is by having at least three active credit lines open. It’s true that it takes credit to build credit. Car loans and mortgages go a long way to rebuilding credit. However, if that’s out of reach try getting a store card or gas card. They are easier to get than major credit cards. You can also consider getting a cosigner or applying for a secure credit card. Websites like AccountNow and All-Access make it easy.

Finally use the credit you obtain monthly. It doesn’t help if it’s sitting in your wallet. Make small purchases and pay them off to avoid interest charges.

The experts say by following these steps, within two years a person can repair their credit to the point they won’t be turned down for a major credit card or loan, and in about four years qualify for a mortgage.

That’s good news for DaMarcus. “At least, I know it’s not hopeless,” she said. “I just have to try.”

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