Every day it seems like I hear a new report about the economy. Some claim the recession is easing, with real estate values leveling and home sales actually increasing in some areas. However, for every good report I see, there are just as many asserting the opposite. Personal bankruptcies are at the highest level they have been at in years, and unemployment rates continue to climb.
Whether or not the economy is improving, one fact remains the same: families all over the country are struggling to make their mortgage payments. Depending on your unique financial situation (the value of your home, changes to your income, missed payments etc.) foreclosure may not be your only option. The Federal government has gone to great lengths to help homeowners across the country stay in their homes, and as you can see from the article below, there are a handful of different approaches you can take to avoid foreclosure. Some, you can do yourself, while others you might want to hire a professional to handle.
If your financial situation changed quickly, and you missed a payment or two before landing back on your feet, then do not worry. Lenders are legally required to reinstate your loan if you pay off the delinquent amount. If you can borrow the money from a friend or family member then you can easily avoid foreclosure. You could even take out a small personal loan to pay off the delinquent amount. In addition, your retirement plan may allow you to take an early withdrawal in order to avoid foreclosure. Be sure to speak with your bank or financial planner to find out which method would be best for you.
If you are current on your loan (meaning you have not missed any payments) then you may be able to refinance your loan before going into delinquency. Depending on your current interest rate, and the amount you owe on your loan versus your home’s value, you could greatly reduce your monthly payments.
HUD Partial Claim
If your loan is FHA insured then it may be possible for your lender to receive a one-time payment from the FHA Insurance Funds to cover your loan’s delinquency. However, before you get excited remember that in these tough economic times thousands of homeowners are requesting this type of assistance.
If you recently lost your job, or had a reduction in pay, and missed a few mortgage payments then you may be able to negotiate a repayment plan with your lender. This is where you make your usual mortgage payment, plus an amount of the total delinquency amount. Repayment plan terms can be as short as a month or two, and as along as a year, and at the end of the term you would have paid off your total delinquency. Afterwards, your mortgage payments will go back down to the original amount. Depending on your lender, you may have to submit a full financial disclosure, and possibly even a good faith payment upfront to begin the plan.
A loan modification will allow you to negotiate more favorable terms to your current loan, without having to begin foreclosure proceedings. You may be able to negotiate a reduction to your interest rate, or even a direct reduction on the principal amount of your loan. Although you can attempt to negotiate directly with your loan company, it might be in your best interest to hire a professional if you are serious about modifying your loan. Lawyers and loan modification companies have experience dealing with lenders and can often reach a better settlement than you could have on your own.
Local Assistance Programs
Depending on what city or state your property is located in, you may be able to take advantage of a local assistance program. For example, the state of Pennsylvania offers a program known as Homeowners’ Emergency Mortgage Assistance where families facing foreclosure can receive emergency funds to help keep their homes. Before beginning foreclosure proceedings, be sure to do research about local assistance programs to see if there are any that you might be able to take advantage of.
If you lost your job or are experiencing a long-term reduction in your income, then you may need to work with your lender to set up a pre-foreclosure sale. This means selling your home at a reduced price in order to avoid being forced into foreclosure. Although this option can be somewhat damaging to your credit, it can get you out of your loan so that you and your family can begin to settle your financial troubles.
Deed-in-Lieu of ForeclosureA last resort to avoid foreclosure is known as a dead-in-lieu of foreclosure. In this situation, you are basically giving your house back to the lender. Although this may sound like a terrible idea to some, it is actually quite a bit less harmful to your credit score than a foreclosure.