Facing foreclosure as a homeowner could be daunting and scary. A foreclosure could leave you homeless, so you need to be prepared if you feel it is unavoidable. However, there are tons of resources and options may help you keep the home. These may include foreclosure and mortgage assistance from churches, charities, and other institutions.
What is Foreclosure?
Foreclosure is a legal process whereby mortgage lenders and banks recoup their money when a homeowner stops paying for the mortgage loan. Typically, borrowers will use a mortgage to buy property and consent to pay the lender monthly until they repay the loan. If the lender cannot pay the monthly payments because of financial hardships such as job loss, the bank or financial lender will get back their money by owning the home and selling it to someone else.
Upon foreclosure, the homeowner is evicted, and the credit report records the house’s foreclosure. That could severely impact the credit ratings of the homeowner.
How to Avoid Foreclosure?
As a homeowner on a mortgage loan, how will you avoid foreclosure and repossession of your home? Below are some of the things you can do to avoid foreclosure.
Monthly Mortgage Payments
The best way to stop foreclosure on your home is to prioritize the monthly mortgage payments. Unfortunately, people understand the importance of making these payments and the repercussions of failure to make payments, but some don’t have the money. You need to have liquid assets or an emergency savings account. Save up some cash in an emergency savings account that will save you when things go south.
In case you lose your job, the emergency kit could keep you afloat before you find another job, and you will also not be at risk of losing your home. If you feel the mortgage payment is stretching your budget, you could consider refinancing your mortgage and seeing whether it could decrease the monthly payments. This option is resourceful for individuals who feel overburdened by the monthly payments for the house due to income reduction, monthly payment increases, or added household costs.
Also, make sure you keep in touch with the lender frequently if you foresee issues in the monthly payments. You will find out that the lender will be willing to work with you to solve the problems rather than go through the foreclosure process, which will be expensive and time-consuming.
8 Ways to Stop Foreclosure and Keep the Home
Defaulting to pay the mortgage loan for about three or more months could ultimately lead to the beginning of the foreclosure process. At this point, your options to stop the process largely depend on your financial situation and how far into the contract you are. It is advisable to always speak to your lender about your issues, and they will see how they can help you out and avoid foreclosure.
1. Square it with the Lender
If you have a temporary issue preventing you from making the regular monthly payments, such as illness, or a recent disability, you can talk it out with your lender. Let the lender know the months you did not pay the mortgage; you make monthly payments like you used to. Most lenders are lenient, and they will arrange for a suitable repayment plan to get everything back on track. Typically, they will add the unpaid months’ amount to the monthly repayment over a given period.
However, as you work it out with the lender, make sure you are true to yourself. Negotiate for monthly repayments that you can afford to pay and still cater for other bills. Do not agree to make more than you can afford if your budget does not allow it. Talk to the lender about different mortgage relief strategies.
2. State and Federal Foreclosure and Mortgage Assistance Programs
You can take advantage of government programs such as the Coronavirus, Aid, Relief, and Economic Security Act in America, where the Act directed lenders to suspend borrowers’ payments for federally backed single-family mortgages. Borrowers were to stop the payments for these families in case they had financial hardships during the outbreak. There was forbearance for the homeowners with federally backed mortgages. These programs will also offer foreclosure prevention solutions for the elderly.
How to know your loan is federally backed
Homeowners needed to determine whether their loans were federally-backed to receive perks given to such homeowners. To find this out, you can:
- Check online using the loan lookup tools
- Please write or call your mortgage servicer and ask them
- Go through the Mortgage Electronic Registration System to get your servicer
3. Mortgage Forbearance
In other words, these stop payments. It is also a federal program where you can pause payments for the mortgage if you have a government-backed mortgage. Mortgages backed by Freddie Mac or Fannie Mae can be excused for 18 months, even though the maximum is 12 months.
For the VA, USDA, or HUD/FHA-backed mortgages, you can also get 18 months of forbearance, but the maximum number of months is 12. Forbearances monies borrowed by homeowners that expect a temporary financial constraint. They anticipate that this constraint will not allow them to cater to all their bills and still pay for the mortgage.
The lender, however, expects that during the forbearance period, you are getting yourself back together and will be able to make the regular monthly payments once the period is over. The critical thing to note about forbearances is that you will have to repay the entire amount you were to pay during the forbearance. You can either pay it in a repayment plan or lump sum.
4. Get a Loan Modification
As its name suggests, a loan modification modifies the existing loan plan. If you do not qualify for a refinance, this strategy can work to ensure you do not undergo foreclosure. It will make the monthly payments affordable while still paying the loan and keeping your house.
The standard type of loan modification you will encounter is extending the loan term. That will give you more time to repay the loan and potentially reduce the amount you pay as monthly payments.
4. Conduct a Sale
Homeowners that are not eligible for any loan restructuring to accommodate their budgets and face financial crises have another option to remain homeowners. You can decide to leave your house in a short sale in this option. In such a scenario, you are selling the home for less money than you owe on the house.
Money acquired from the sale goes to the lender, who could forgive all or part of the remaining balance. However, you have to talk to your lender first since you are not a full homeowner with this option. If they accept the deal, then you can go ahead and make a short sale.
5. File for Bankruptcy
Homeowners facing financial constraints can also file for bankruptcy to stop the event of a foreclosure. If you feel that the foreclosure sale is inevitable, you can file for bankruptcy. The “automatic stay” immediately comes into effect once you file for bankruptcy. That means the bank or your lender cannot foreclose your home or try to collect the debt from you.
However, bear in mind that the bank may file a relief motion from the stay. Filing bankruptcy could temporarily stop foreclosure of your home for one or even two months. However, the court may allow the bank to proceed with the foreclosure. Bankruptcy could give you enough time to find out what next. You will probably figure it out in one month.
6. Talk to HUD-Approved Counseling Agency
Are you looking for expert advice on the foreclosure issue? Talk to the Department of Housing and Urban Development agency. The agency has housing counseling agencies all around that offer loss mitigation counseling to anyone that faces foreclosure. The agency will help you understand the different ways you can stop the foreclosure and keep your home. Their services are offered at no cost or very little if any. In light of this, vulnerable homeowners can also seek consumer credit counseling services for help. (about HUD)
7. Deed in Lieu of Foreclosure
It is also known as deeding the home to the lender. Here the homeowner will present a notarized and properly prepared deed to the lender, whereby the lender will then forgive the mortgage. That, in turn, will cancel the planned foreclosure. Deeds in lieu will affect your credit score, just like foreclosure.
8. Use your Assets
If you own assets such as expensive jewelry or several cars, you can use them to offset the loan or make the monthly payments for the mortgage. If anyone in the household could work to earn extra income, let them do it to bring in more cash. Even though these small efforts will not bring in significant money, it shows your lender that you are willing to work things out.
Foreclosure is never a pleasant term for homeowners. Failure to pay the monthly payments for the mortgage could lead to foreclosure, and basically, financial issues may arise at any time without notice. You may be laid off tomorrow from work, worsening your situation and leading to potential foreclosure. There are ways you can avoid foreclosure, as outlined in this guide.
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