If your situation is permanent, you have more serious problems and choices. If your income has been reduced for the foreseeable future, you may still be able to modify your existing loan or refinance to bring your payments to a manageable level. If your income has been reduced to a point where there is no way you can make even reduced payments in the foreseeable future, you are facing foreclosure.
If you have substantial equity in your home, sell the property. You can probably get an equity line of credit to keep you going until you complete the sale. If you have a financially strong buyer who wants to assume your loan, ask the lender about it even if your loan states that it is not assumable. This workout assumption may be acceptable to your lender rather than having the loan repaid in full and your buyer seeking financing elsewhere. If you have little or no equity, approach your lender with one of two options.
1. The first is called a short sale. This is when the lender agrees to accept the proceeds of a sale even though it is less than you owe. This will work best if you have a buyer, but after all expenses of the sale, you will net somewhat less than you owe on the mortgage.
The reason for this type of arrangement is that it costs the lender time and money to foreclose. If the loss on the short sale is comparable to the loss the lender will suffer through foreclosure, it makes sense to accept the short sale.
A loan modification makes it easier to catch up on missed payments and keep the loan current in the future.
2. The second option is called a deed in lieu of foreclosure. The deed in lieu is a direct method of turning over ownership to the lender without the foreclosure process. Again, the lender saves the time and expense of foreclosure. When offering a deed in lieu, be sure that you have no obtainable equity. If a sale will net you some cash, the deed in lieu is not a good alternative.