The VA Mortgage Option for the Widowed
Widows and widowers are in a unique and difficult position. What can exacerbate the difficulties is the threat of foreclosure on your home if you are no longer able to make payments. While not every widow or widower will be put in this position, most will find themselves either refinancing their home or moving to a smaller home in the months following the death of their partner. You probably want to make your mortgage payment more manageable or otherwise lower your living expenses.
Consider Paying off Your Home Completely
If your spouse had a life insurance policy, it may give you enough cash to completely pay off your house. If so, you should definitely consider this option. Your single largest expense every month is your home, and if you use that money to pay off your home, you significantly reduce your monthly expenses, and you keep the money and can still access it in case of emergency by selling your home. If the life insurance policy isn’t enough to pay off the house, and/or you don’t have much other income to cover yourself for the foreseeable future, you may want to use the money from the life insurance policy to live off of until you are able to support yourself. If you are unable or decide not to pay off your home, you still have other options that can help make your life a lot easier.
Refinance For a Lower Payment
The first option you should look at is the VA hybrid ARM. You can get an extremely low-interest rate that is fixed for the first 3-5 years, and can only incrementally rise (if it rises at all) by 1% each year. By lowering your interest rate, you can lower your minimum monthly payment by a large amount – usually by several hundred dollars. You may be tempted to stay away from ARMs because of the perceived risk, but if you’re concerned about losing your house here and now, getting an ARM will buy you at least 6-7 years before your interest rate will be back up as high as it is now, and by then you’ll have a lot more of your house paid off and you’ll be more stable than at this volatile time.
You may also want to consider combining this option with the first option – use as much of the life insurance payout as you can to bring the principal down on your house, then use a hybrid ARM to get a low interest rate on the remaining principal. If you make more than the minimum payment, you might be able to finish paying off your house before the initial fixed period ends. The VA hybrid ARM program is designed to minimize the risks associated with ARMs in general. the VA ARM uses a much more stable index to calculate their interest rates, they can only adjust once per year and not more than 1% with each adjustment, and they cannot increase by more than 5% over the life of the loan. You certainly don’t have to go with this option, but it is usually going to be the best option if you are looking to refinance.
Move to a Smaller Home
This option depends a lot on where you’re at in life at the time your partner passes. If you’re still young and have kids at home, this may not be a realistic or even desirable option. However, if your kids are grown and it’s just you in the house, a change of scenery and less house to upkeep can be very helpful – not just financially, but emotionally as well. You’ve most likely got equity built up in your current home, and if you use your VA loan benefits to purchase your new home, you can do it with very little money down. You may not even have to move to a smaller home if you are willing and able to move to an area where housing is cheaper than where you currently live.
Often, the hardest thing about the loss of a partner is trying to meet the demands that life is still placing on you while you’re still poignantly feeling the loss. Unfortunately, the demands of life are not going to go away – your loan holder still wants his money every month, you still need to buy and prepare food, your utility payments need to get paid, and your work, church, and family responsibilities will still be there. Don’t let the pain of the moment destroy your future.