The volatile combination of variable interest rates, the once-booming housing market, and easy-to-obtain mortgages have placed some homeowners in an extremely awkward spot. Feeling trapped in a home they can no longer afford but can’t afford to sell, a growing number of homeowners are wondering what they should do next.

OPTIONS ARE AVAILABLE
Financial challenges leave people frozen by indecision or lack of knowledge, not realizing that there are options open to them. Real estate guru Barbara Corcoran offers advice for anxious homeowners about some of the options available:

Rent your house
A lot of people live in a bigger house than they need. Rent it out, rent something smaller and cheaper, and use the difference to pay off bills.

Get a reverse mortgage
Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.

Have a 4-hour sale
This radical option could be for you. During the four hour window anyone interested in your house size and location shows up, and it puts pressure on them to bid if they are interested. Rather than do this yourself, have a broker help you run it.

WHEN YOU CAN’T MAKE THE MORTGAGE PAYMENT
When the economy heads south, unemployment follows and late payments aren't far behind.  You don't want to let the situation go too far. Neither does your lender, who doesn't want to own your home. It is costly to dispose of, and they also lose the fees collected to service your loan. Money Magazine editor-at-large Jean Chatzky offers this advice:

If you haven't missed a mortgage payment:

• Refinance. With equity in your home, you may be able to extend the term of your mortgage, which lowers payments to an affordable level.

• Consolidate other debts. Free up more cash: consolidate a higher-rate credit card and other debts as part of a mortgage refinance or on their own.

• Consider credit counseling. Beware of disreputable counselors lurking among the helpful ones. HUD maintains a list of approved counseling agencies at www.hud.gov. You might want to start there.

If you've missed a mortgage payment:

• Contact your lender. Explain your difficulty and how long it may last. Be prepared to provide financial details, including monthly income and expenses.

• Investigate partial payments. With an FHA loan, your lender may let you make a partial payment without changing your mortgage terms. Although you often can't do that with a conventional loan, if you miss a payment, your lender generally lets you make it up over several months.

• Look at a loan modification. If you can pay something, your lender will usually work with you on an affordable payment plan, called a loan modification. It works a bit like refinancing without going through that process.

• Consider two last resorts. Neither will protect your house, but both protect your credit rating.
  • A "pre-foreclosure sale" lets you sell your property while living there
  • A "deed in lieu of foreclosure," in which you give back your house to the lender, who disposes of it

CONSIDER A SHORT SALE
A short sale is a house sale in which the proceeds fall short of what the owner owes on the mortgage. Many lenders accept short sale proceeds and forgive the balance owed on the mortgage when the owner cannot make mortgage payments.

A short sale is a complex process; always seek the help of a professional when considering this option.

SEE IF UNCLE SAM CAN HELP
Ask your lender about a one-time payment from the government’s FHA-Insurance Fund to bring your mortgage current. You may qualify if:

• your loan is at least 4 months delinquent, but no more than 12
• you are able to begin making full mortgage payments

The HUD approved counseling agency offers free services. Call (800) 569-4287 for the nearest housing counseling agency.

You may want to ignore this frightening financial reality, but the problem will not solve itself. It takes work to keep your home and stay current on your mortgage but you can look into options and make changes to prevent this significant loss.