A mortgage payment could be cheaper than paying rent

Some California homeowners dealing with a cash crunch could be considering difficult but necessary options — perhaps foreclosure, a short sale or even selling their home with little or no equity afterwards.

But what happens when the deal closes or the homeowner walks away? Where will the homeowner and their family live?

It’s an important and often pricey question.

California homeowners that believe living mortgage-free means more money in their pocket, may want to reconsider. In many cases, former homeowners could actually pay more in monthly rent than their previous monthly mortgage payment, according to industry reports.


California rental rates have increased about 15% during the past year, and more in some areas of the state. In fact, the Golden State has six of the 18 most-expensive metropolitan areas in the nation for rent, including four in the top 10.

A two-bedroom apartment in San Francisco will cost about $4,650 per month — the highest rent in the nation and almost $1,000 more than second-place New York City, according to Zumper.

Los Angeles is the second most-expensive city for rent in California (and fifth nationwide) at $2,500, followed by San Jose (sixth in the U.S) at $2,308 for a two-bedroom home. Oakland finished as fourth most expensive at $2,270, followed by San Diego at $1,840, according to Zumper.

Earlier this year, the Economic Roundtable put out a report that found 13,000 people become homeless in Los Angeles County each month, due to the high cost of housing.

Even if you live in California’s midsize, inland cities, rent could cost a few hundred dollars more than a mortgage, according to Zillow. For example, the average rent for a three-bedroom home in Sacramento is $1,459, with Bakersfield and Redding at $1,374 and $1,311, respectively.

Sure, as a renter you don’t have to pay property tax and homeowner’s insurance, but you don’t have the tax benefits of homeownership, either. Keeping people as homeowners with an affordable mortgage payment is a better option than having them enter the high-cost rental market due to a financial hardship.

So, what if you could actually stay in your home?

Well, Keep Your Home California, the free mortgage-assistance program, has four distinct programs that could help. The federally funded, state-managed program has one primary goal: help homeowners stay in their homes.

For example, Keep Your Home California’s Mortgage Reinstatement Assistance Program allows homeowners to catch-up on their past-due payments, up to $54,000. Now, homeowners must be able to make the payments going forward, but this gives them a clean slate and the opportunity to remain in their home.

The Principal Reduction Program offers as much as $100,000, lowering their principal balance and often reducing the monthly mortgage payment by hundreds of dollars. The program is designed to help homeowners with unaffordable or underwater mortgages.

And the Unemployment Mortgage Assistance Program provides up to $3,000 per month for 18 months, or a total of $54,000, for out-of-work homeowners. Rather than worrying about the monthly mortgage payment, homeowners can focus on finding a job.

Of course, Keep Your Home California has some requirements, including the homeowner’s mortgage servicer, the company that collects the monthly payment, must participate in the program. More than 240 mortgage servicers are currently enrolled in the program, including Bank of America, Wells Fargo and Chase.

And homeowners must meet county-by-county income requirements, which range from about $70,000 in rural counties to more than $120,000 in some Bay Area counties. Additionally, homeowners must have suffered a financial hardship — such as a job loss, cut in pay, divorce or extraordinary medical expenses — in order to be eligible for the program. Severe negative equity, a loan-to-value ratio of 120% or more, is considered a financial hardship for the Principal Reduction Program.

If you would like more information or want to apply for Keep Your Home California, call 888-954-KEEP (5337) or visit www.KeepYourHomeCalifornia.org (Spanish speakers should visit http://conservatucasacalifornia.org/ ). The counseling center is open 7 a.m. to 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays. Translators are available, so counseling sessions can be conducted in virtually any language.

Image courtesy of iosphere at FreeDigitalPhotos.net.