Foreclosure is the last thing on your mind when you take out a loan to build or buy a new home.
But unforeseen circumstances crop up that prohibit you from paying the monthly amortization dues. Commonly given reasons are involuntary unemployment, a medical emergency, death of a family member, divorce or a reduction in income. When this happens, the financing institution forecloses your house when you fail to pay the mortgage. The numbers of missed payments that result in a foreclosure vary, depending on the state where you live in.
But you can still save your home from being foreclosed. The first thing to remember before resorting to any of these foreclosure-preventing methods is to maintain open communication with your lending agency. Instead of hiding from their calls or ignoring their letters, talk to them about your situation.
Next, read the fine print on your loan documents. You'll be better able to negotiate with the lender if you know your mortgage rights and the possible legal actions the lender can take against you. Study the foreclosure laws of the state you live. US government agencies that offer help and information for homeowners are the State Government Housing Office and the Department of Housing and Urban Development.
Well-armed with relevant data, you can now face your lender or another agency and discuss the following options you can choose from before settling on a foreclosure:
A short sale is putting up your house for sale at a price that is lower than the remaining balance on your loan. It needs the approval of the lender and you can pay off your loan partially or in full using the proceeds of the sale. The downside is, people looking for a house are wary of the short sale. Click here to know the perils of buying a house that is foreclosed or due for one. The short sale is an option if you are not eligible for a loan modification or refinancing. It will hurt your credit score but recovery is faster than a foreclosure.
This option alters the terms of the first loan, including the monthly payments and interest rates. It is also called a restructuring, and it sets a monthly amortization that you can afford in your changed financial status. Although it affects your credit score, you can still continue living in your house as long as you meet the new payments.
With this alternative, you are allowed a new loan provided that you have sufficient equity and you meet the criteria for a loan. Refinancing replaces your existing mortgage with terms that are friendlier to your new and lower income level and it does not have a negative effect on your credit score.
Forbearance is the suspension or reduction of mortgage payments for a specified short period of time. This option is available to homeowners who have encountered a temporary financial hardship like an accident or illness. It allows you a period of recovery set by both you and the lender until you can make your loan current again.
A repayment plan is an option you can avail of if you are behind in your mortgage payments and catching up is difficult because of mounting fees and charges. The past due amount is divided and spread out over several months in addition to your regular monthly amortizations. After the past due is fully paid, your loan becomes up to date again.
About the author: Marie Miller is a real estate agent. She also gives tips on home building and buying and taking out a home loan.