Friday 6th of December 2019

Foreclosure Options You Should Know About

The recent subprime mortgage debacle has already led to an overwhelming amount of foreclosures, bank failures and panic in the U.S.; the real estate market has slowed drastically and interest rates have risen. If you’re at risk of foreclosure, acting quickly can reduce the chance and put you in a position to better your economic situation.

Falling Behind

Hopefully you’ve not fallen behind on your mortgage payments– which lowers your credit rating considerably, even after only 30 days, and which reduces your options further if you’ve been issued a notice of default– but lenders offer several different solutions if you have fallen behind: reducing or waving payments for a specified period of time; short-term repayment plans to make up the discrepancy; and addition of the unpaid balance to your loan’s principal, which increases your monthly payments in return. If your loan is insured by the Federal Housing Administration you might be eligible for an interest-free loan to cover your mortgage debt, which you needn’t pay off until you sell your house or pay off your mortgage. The longer you wait, the fewer options you’ll have and the harder it will be to avoid foreclosure.

Mitigation

You’re going to want to deal with the loss mitigation department of your lenders, but you may not be put into contact with them until you’ve missed several payments. Instead you might be dealing with the collections department, which wants you to pay up ASAP and doesn’t offer alternatives. Thus, if you’re serious about getting out of debt and keeping your home, you might have to pressure your lenders to connect you with their loss mitigation team.

If you’re in over your head, it’s time to step back, take a deep breath and evaluate your situation. Here are some steps to avoiding foreclosure:

  • First, make a budget. Estimate your expected income and expenses over the next few months and see how much unnecessary spending you can cut in order to pay more toward your mortgage. Make the minimum payments on all your other bills, unless you’re completely sure that you can expedite paying off your mortgage debt by missing a different payment. Even then it may not be worth the risk.
  • Think about getting professional help from an accredited credit counselor– one that’s part of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. They can help you reduce your debt.
  • If your credit rating isn’t too low, you have equity in your home and you’ve not received a notice of default, then you may have refinancing options. Do some research beforehand and make sure that you don’t just hop from one risky mortgage to another (adjustable-rate mortgages are especially chancy).
  • Lastly, be sensible. Too many people bend over backwards to make payments on a house they’d be better off without; people are often that tied to a simple piece of property. Foreclosure will wreak havoc on your financial life, and you may better off to sell your home– if possible– while you still have equity and an in-tact credit score.

Even if worse comes to worst, you may be able to get another mortgage with a realistic interest rate in several years by rebuilding your credit, with some effort of course. Minimize the damage to your financial life and get back on track.