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How to Avoid Foreclosure in a Few Simple Steps
Are you finding it increasingly difficult to pay your mortgage on time?
Foreclosure is a scary prospect when you face financial difficulty. Not only do you risk losing your home, but you also have a potentially serious mark on your credit report that can follow you for years.
One in 215 homes entered foreclosure filing in 2018. Learning how to avoid foreclosure can help prevent you from becoming part of the statistics.
Keep reading to learn some simple steps to stop foreclosure before it starts.
Evaluate Your Financial Situation
Before you look for foreclosure assistance, it's important to understand your finances currently and going forward.
What got you into your current situation? Did you lose a job or have a large, unexpected expense?
Will your financial situation improve soon, or are you uncertain if you'll be able to pay your mortgage in the future?
Looking at your budget to see who much money is available can also help you negotiate with your lender.
Contact Your Lender
When you realize your financial situation will make it difficult to pay your mortgage, contact your lender as soon as possible. It's tough to admit that you can't pay your obligations, but your lender could give you more grace if you call early.
Even if you're already behind on your payments, contact your lender. Avoiding the collection calls and ignoring the past due amount only makes the situation worse.
Your lender might have programs or options to help you avoid foreclosure.
Ask for Forbearance
One possible option lenders offer is forbearance. This could be an option if you're facing a temporary financial difficulty that should resolve soon.
Forbearance means the lender lets you stop your payments or pay a lower amount temporarily.
You'll need to sign an agreement for the forbearance, which will cover the length of the forbearance period. You'll also have to agree to pay back the amount you missed. Your lender might offer a repayment program or modification to do this.
Modify Your Loan
Your lender might also allow you to do a loan modification. This option changes the terms of your loan permanently and might be offered if you've gone through a major life change, such as a job loss.
The changes made during a modification might vary depending on the agreement. You might be able to get a lower interest rate, or the lender might agree to extend the loan term to give you more time to pay off the balance.
Along with the changes to the loan's terms, the lender might agree to put the amount that's past due onto your loan balance.
This option can make your mortgage more affordable, but you might end up paying more on the mortgage over time. Stretching out the payments over a longer period means you'll accrue more interest over the life of the loan.
Come Up With More Money
Look at your budget to see if you can free up money that can go toward catching up on your mortgage payments. You might cut cable TV subscriptions, cancel memberships, or temporarily reduce spending in other areas to put more money toward the mortgage.
If your financial situation is temporary, consider selling belongings, adding a part-time job, or doing some side work to earn some quick money.
Another option is borrowing money from a friend or family member. You might also have loan options from your financial institution.
Before borrowing money, consider whether or not you can comfortably pay it back. If you're already in a tough financial situation, you don't want another loan that could cause you to default.
File for Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy could buy you time to help prevent foreclosure.
When you file for bankruptcy, your lender has to pause the collection process during the foreclosure. It won't undo any of the foreclosure steps that have already happened but you may be able to negotiate a repayment plan on your past-due mortgage balance.
Keep in mind that bankruptcy also has a significant impact on your credit score. You'll still need to be able to make future mortgage payments and catch up on the past-due amount for this option to help.
Sell Your Home
If you have enough equity in your house to cover your loan obligation, selling is an option. The proceeds of the sale go to pay off the mortgage. Depending on how much equity you have, you could even come out with some of the proceeds if there's extra after the loan is paid.
Consider a Short Sale
Not all homeowners have enough equity to sell the home and pay off the mortgage. If you fall into that category, you could still have an option to sell the home and get out of the mortgage.
Called a short sale, this option means the proceeds from the home sale aren't enough to pay off the full balance of your mortgage.
You'll start the short sale process like normal by listing your home. Once you accept an offer, your lender also has to approve it. That's different than a normal sale when the bank doesn't have a say in whether an offer is accepted or rejected.
Your lender might forgive the remaining balance not covered by the sale. In some states, your lender can hit you with a deficiency judgment. That means you have to pay the amount that was remaining on your mortgage balance.
Short sales typically don't have as much of an impact on your credit score as foreclosures. However, you can expect your credit score to drop, often 120 to 130 points.
Learn How to Avoid Foreclosure
Figuring out how to avoid foreclosure can seem difficult when you're facing financial difficulty. Knowing that you have options if you reach out for help can relieve some of the stress of the situation.
If you're facing foreclosure, contact us to see how we can help you.
By Completing a Real Estate Short Sale
You can preserve your credit score and walk away with dignity and know you did what you could.
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