Tips to Help Avoid Foreclosure
Take a look at the news and it certainly is not pretty when it comes to
the housing crisis and the decline of the real estate market. More than
3 million foreclosures have been filed as a result of default notices.
Bank repossessions and sale notices have exceeded 2 million. Whether it
is a result of an increasing unemployment rate or homes becoming
unaffordable with rising adjustable rate mortgages, many homeowners
across the country are struggling to pay their mortgages. Homeowners who
are beginning to feel the pinch of economic struggles do have some
options that can help them to avoid foreclosure.
The most important tip that any homeowner who has found they are
experiencing difficulty with their mortgage is to take action early.
Customers who find they are having trouble should make an effort to
contact their lender and ask for help. When doing so it is important to
be prepared to provide information regarding current income and expenses
including groceries, utilities, gas, car payments, etc.
In many cases, if a homeowner takes action early enough the lender may
be willing to work out a strategy with the homeowner to help them avoid
foreclosure. It is certainly in the best interest of everyone for the
homeowner to stay in the home and continue to make payments to the
lender. This is precisely why many lenders are implementing strategies
that are meant to assist homeowners in staying in their homes.
One possible option that a lender may offer is deferment. This option is
best used when the problem that is preventing the homeowner from making
payments is short term. It allows the homeowner to bring their account
up to date and then defer the expenses associated with late payments to
the end of the loan. Homeowners who consider this option should
understand that they will typically be required to make a good faith
payment at the time they request the deferment.
Another option that lenders may make available to homeowners who are
experiencing difficulty is a repayment plan. This option provides the
homeowner with the opportunity to catch up on any payments they may have
missed by devising a schedule for repaying amounts that are past due.
Refinance is another option that may be available in some cases.
Interest rates are at an all time low, making it possible for homeowners
with an unaffordable interest rate to refinance to a lower interest rate
that would make their mortgage payment affordable once again. Homeowners
considering this option should understand that in order to refinance
their home they must have good credit and must typically have at least
20% equity in their home. This does make it difficult for homeowners who
have already experienced financial problems and as a result have poor
credit as well as homeowners who may be upside down on their mortgages
as a result of declining home values (Read
Tips for Refinancing your Mortgage).
If you fall into one of these categories it is important to make sure
you find out the value of your home as well as check your credit to
determine whether you may qualify for a refinance before you actually
make the application. This is because there are non-refundable
application fees that apply when you make an application for a
refinance. In the event that you make the application and then discover
after the fact that you do not qualify for the loan, you will be out
those fees. Taking the time to do some research ahead of time could save
you several hundred dollars.
The final option that may be available from a lender to assist in
avoiding foreclosure is
loan modification. Loan modification allows either
temporary or permanent changes to be made to the terms of a mortgage
loan. In many cases this can make the mortgage affordable for the
homeowner and allow them to remain in the home. There are a variety of
different ways that a mortgage can be modified including extending the
terms of the loan up to 40 years, reducing the interest rate so that
payments become affordable or changing the principal balance by either
reducing it or deferring it. Keep in mind that in order to qualify for a
loan modification, you may need to already be behind on your mortgage.
If you have recognized that your mortgage is becoming unaffordable but
you are not yet behind, it is still a good idea to go ahead and contact a
loan modification specialist and ask for help so that you can avoid the consequences of late
payments, including negative marks on your credit report.