Three Things to Know to Avoid Foreclosure
A notice of default is probably the worst nightmare for a homeowner. People work towards owning a home for a lifetime. It’s quite natural to get stressed over the prospect of a looming foreclosure, but you would do yourself and your home a disservice if you give in and let your lender take away your home. Instead, you should fight tooth and nail and try to save your home.
Why you need to fight foreclosure even if you don’t want to keep your home
Social stigma associated with the ‘F’ is not the only reason you should try to avoid foreclosure, even if you don’t want to keep your home. Foreclosure can have some very serious long-term implications.
The biggest victim will be your credit score. A foreclosure can stay on your credit score for nearly seven years. It means that you will not able to take out a new loan during this period. Lender may even prevent you from opening a new credit card. You will have a hard time renting a new place because when a landlord will do a background check, your credit report will show a foreclosure. It will cast doubts on your ability to pay monthly rent.
Why you need to act before the proceedings begin
Instead of missing mortgage payments, you should act as soon as you realize you won’t be able to keep up with the installments. If you choose to ignore the notices from your lender and take your chances, you may end up with foreclosure alternatives like bankruptcy. A bankruptcy filing can show up on your credit score for up to 10 years. A short sale might not be a great option, because it will also severely damage your credit.
If you don’t want to keep your home for any reason like negative equity, there are better alternatives than foreclosure, bankruptcy and short sale. For example, you can sell to a cash buyer before you start missing your monthly payments. Some investors will even assume your mortgage, meaning that if you sell your home to them, they will pay it off. This strategy is particularly good if your financial troubles are going to be long-term.
Some great foreclosure alternatives
If your troubled financial situation is short-term, you can get your lender to suspend a few mortgage installments. For example, if you lost your job, you can have monthly payments suspended for a few months until you find a new one and start getting paychecks.
You can also have your lender modify your loan. Your lender can spread out your loan over a longer duration. For example, if the amortization period is 20 years, your lender can extend it to 30 years, thus lowering the amount of your monthly installments. You can also refinance your loan which means you take out a new mortgage with longer amortization period and probably less interest rate. Since it will be a new loan, you will have to pay processing fee and other closing costs.
You can also refinance or modify your loan under the Home Affordable Refinance Program (HARP) or the Home Affordable Modification Program (HAMP). To take advantage of these programs, your loan has to be backed by the government.
You can also explore Home Affordable Foreclosure Alternatives Program (HAFA), a government initiative to help homeowners avoid foreclosure through a short sale or a deed-in-lieu of foreclosure (DIL).
Conclusion
If you don’t want to lose your home, you have many options. Make sure to explore each one of them. Nine times out of ten, you will be able to avoid foreclosure.