Is your home worth keeping?

Some change their minds when they see the hopelessness of their situation or the advantages of walking away from what they owe.

But others feel honor-bound to pay if they possibly can. Such folks will do what they can to avoid foreclosure, and move out as soon as it's clear they're losing their homes.

Those folks aren't stupid. What may not be the smartest decision in financial terms is still the right choice for them.

"It's so much more important to listen to your heart and go that way," Elias said, "than to take advice from someone like me."

3 key questions

If you're weighing whether to fight for your home, ask yourself these three questions:

Can you make your mortgage payments while meeting your other obligations? Those obligations include feeding your family, paying your other bills and saving for retirement. If you can trim your expenses and reduce your bills to make your mortgage more manageable, clearly you should.

But if your payment already gobbles up half or more of your gross income and more increases are on the horizon, your situation may be untenable.

Can you keep your home without raiding your retirement funds? It's almost never a good idea to dip into your 401(k) or individual retirement account to pay continuing bills. Withdrawals trigger serious tax penalties and deprive you of future tax-deferred returns -- figure that every $1,000 withdrawal costs you $10,000 in future retirement income.

That sacrifice might be worth it if you'll actually keep your house, but many who are tempted to raid their retirement funds will only delay, rather than prevent, the loss of their homes. Then they're left with no home and no retirement.

Is a rescue in sight? Don't mortgage your future by holding out for a rescue that may never come. Talk to a HUD-approved housing counselor. These folks know all the details of the loan modification plans and can help you assess whether, and how much, you'll be helped. You can find referrals here.

If you decide to explore foreclosure

Avoid scams. Ignore anyone who contacts you offering foreclosure help or demanding huge upfront payments. HUD counselors, or those from the National Foundation for Credit Counseling, can provide the information you need for free. If you decide you need an attorney's help to save your home, get a referral from your local bar association.

Learn more about the foreclosure process. It varies widely from state to state, moving faster in some than in others and carrying different risks. In some states, for example, lenders can sue you for the difference between what you owe and what the foreclosed home sells for; in others, the risk is lower or nonexistent. Elias' book is an excellent primer, but you'll also want to talk to a bankruptcy attorney.

Keep an eye on the bankruptcy news. Right now, a bankruptcy doesn't do much to help you keep your home unless you can quickly catch up on your payments. But Congress may soon allow bankruptcy judges to modify terms on primary residence mortgages. If your principal could be reduced and your payments made more affordable, the cost of a Chapter 13 bankruptcy filing could be worthwhile -- but again, you'll want an attorney's advice.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Dec. 8, 2008

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