Foreclosures are a homeowner’s worst nightmare. Yet thousands of people face foreclosure every month because they are struggling financially and can’t afford the monthly payments on their home.

Why is it important to avoid a foreclosure? For starters, it damages your credit score. You may see a drop of 200 points or more. In addition, it stains your credit report for seven years, making it very difficult to secure a new mortgage loan or open other lines of credit during that time.

In the end, you may have no choice but to foreclose. But don’t assume all hope is lost because you’re a month or two behind on the mortgage. Typically the process doesn’t start until you fall four months behind, according to the Consumer Financial Protection Bureau, and the bank will notify you before the proceedings begin.

If you’re having difficulty keeping up with your mortgage payments, follow these suggestions to avoid taking the foreclosure route.

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1. Don’t ignore the problem

Saving your house from foreclosure will require you to be proactive. Contact your lender at the first sign of trouble, the Federal Housing Authority (FHA) urges. While on the phone with them, be prepared to explain:

  • Why you cannot make payment
  • If it is a temporary or permanent problem
  • Your financial position including income, expenses and current assets

According to the Federal Reserve Board, mortgage lenders want to work with you to resolve the problem, and you may have more options to consider the sooner you contact them.

2. Examine your income and budget

After the phone call to the lender, the next step is to see whether you can add income or cut expenses to make ends meet. When your house is on the line, all expenditures should be scrutinized. Are there opportunities to earn extra money with a part-time job? See if you can spend less on food, clothing, utilities, cable, phone or Internet service and insurance premiums, the Federal Reserve Board recommends.

It may be painful and inconvenient to cut back in some areas but not as painful as losing your home. Plus, by making these sacrifices, you demonstrate to the lender you are serious about not losing your home, the FHA says.

Most important, no matter how bad the situation gets, stay in your home. Don’t abandon it because you are behind on the mortgage. You may lose the chance to quality for assistance if you leave, the U.S. government says.

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3. Bring in a housing counselor

Asking for help may be tough, but there are resources out there to assist you with the foreclosure process. The Department of Housing and Urban Development (HUD) has approved housing counseling agencies, and FHA will provide one to you free of charge. A counselor can help you analyze your budget and suggest viable options you may not have considered. They also can instruct you on how to work with the lender or even negotiate on your behalf.

One note of caution: Beware of foreclosure-related scams. There are con artists seeking to take advantage of homeowners in desperate situations. Know how to spot a foreclosure scam, and report it if you become suspicious.

4. Alter your mortgage terms

As you work with the lender, it may be possible to change the terms of the mortgage. According to the FHA, the lender may offer you a special forbearance, where they provide a temporary reduction or suspension of all payments until your financial situation improves. Lenders can “reinstate” your loan if you can pay a lump sum by a specific date to take care of all the back payments.

They also may modify the loan entirely. Lenders have the ability to change the interest rate on the loan or extend the number of years to pay off the loan, the FHA says. They may even be able to offer you a second loan that you could use to bring the delinquent account current.

5. Get rid of the home

If all else fails, try to sell your home through a regular sale or short sale, where the lender allows you to sell the property for less than you still owe. Another option, according to HUD, is a deed-in-lieu of foreclosure, which is when the mortgage company allows you to give the title back, transferring ownership of the home to them.

Selling a home is not the outcome you were looking for, but again, it’s better for your financial future than having a foreclosure on your record.

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Brian Fourman is a stay-at-home dad who writes about home safety and personal finance.