The stock market has enjoyed a small bounce the last couple of days, but the real estate market will take a little longer to recover. A lot of people have seen the value of their homes drop by 30-40% over the last couple of years, and with job layoffs at their highest in decades many are looking for advice on what to do with a mortgage payment they can no longer make.

Before you throw up your hands and simply walk away, there are some things you can try. After all, you did agree to the terms of the contract, so legally and morally you owe the money and the bank deserves to get paid.

Try a short sale

If you are forced to sell your home because you can no longer make payments due to a loss of job, you are probably finding that this is not a sellers market. The number of people looking to purchase right now is pretty small and there is a lot of supply so buyers can be pretty picky. Since you are almost guaranteed to be ‘under water’ with your mortgage, you will likely be looking to try a short sale.

A short sale is simply your lender agreeing to accept a sale price that is short of the amount you owe on your home. The key to making a short sale work for you is communication with your lender. Do not try to keep them in the dark with what you are planning on doing, because to get the short sale to work, they will have to approve the sale price. If you have a second mortgage, that lender will also need to be part of the discussion.

Impact to your Credit

A short sale will very likely impact your credit score, but based on the fact that you are trying to get out of a bad situation you may already be experiencing some credit problems. Do not let the fear of ‘trashing’ your credit keep you in a house you can’t make payments on. A short sale is not nearly as bad on your credit as a foreclosure.

After you sell your house you will probably need to rent for a while until you can clean up your situation. Don’t get into a big hurry to get back into a house. Take your time, get out of debt, save up money for a down payment and then start looking for your next house. During that time you will have re-established your credit and will be ready to get back into the game.

In the meantime, there are a lot of banks and credit unions that are creating new programs to help those that got burned in the housing crisis.

Aaron Bresko, the vice president of lending for BECU, another large credit union based in Washington State, is putting together a panel called “How to Lend to the Newly Credit Impaired” for a conference later this year.

“Good people have bad things happen to them, so how do you find those people and reach out to them?” he said. “As the year progresses, it’s going to be an emerging market.”

It used to be that when you wanted to take out a mortgage, you would fill out the application, the bank would then determine if you were able to pay back the loan. If you were, you signed your name in the act of agreeing to the terms of the loan and then in 15 to 30 years you owned your home.

Fast forward to to today. The United States government sets up some really bad policies, so that almost anyone can get a mortgage; even if you can’t repay. The banks set up ridiculous terms and because of irresponsible lending defaults occur. A lot of defaults. People are crying about how bad the lenders are, even though the policies put in place forced/allowed them to make the bad loan. The economy gets tough people lose their jobs, can’t make their mortgage payment, lose their home, banks fail, and more people lose their job. The government decides to help correct the debt problems by borrowing more money, and give $75 billion to the very people who were irresponsible the first time down the mortgage trail.

Can someone tell me how we are going to guarantee that my tax money that is now being used to bail out people that made some really bad decisions won’t simply be wasted because the family that got money from the mortgage bailout, never learned to live on a budget and are still spending more than they make?

We are looking at financial goals for the New Year. MSN Money lists 6 financial milestones to reach before age 30. If you are already over 30, these milestones are still worth looking into, but the real question is whether or not these milestones are good goals. We will be looking at one milestone each day, today we are looking at the second milestone.

1. Scale back the credit cards

“Own a home — or have a plan”

“buy what you can afford, not what you love.” And don’t forget the new expenses that come with a house — like a lawn mower, furnace repairs and snow shovel.

I agree that owning a home is a good idea, but only if you are financially prepared. Generally, that means you have gotten rid of your debt and your emergency fund is in place. The primary cause of the current mortgage crisis is people getting more house than they can afford. The amount you can reasonably afford is directly related to the sum of your income and all of the other debt you are trying to juggle.

If you are unsure of how much home you can afford, the first rule is ‘don’t listen to the mortgage broker’. Not all brokers are bad, but for the most part their job is to get you into the biggest loan possible. That usually means you will be getting more debt than you can realistically afford. We teach that your housing expenses (mortgage, insurance, and taxes) should not be more than 30-35% of your take home pay.

If you can not afford to buy your house before you are 30, don’t feel bad. Renting is not a bad thing as long as you are getting ready for home ownership.