The first thing you’ll want to do to avoid foreclosure is stay current on your mortgage payments. Of course this is obvious, but what may not be so obvious are the options you have for doing this. If you are already behind on your payments, there are some tips for you in in part two as well.
If the problem is truly temporary, and soon you’ll be able to handle your payments again, borrow the money to keep up on your payments. Family may be able to help, but even if you have to pay a few hundred dollars in interest for credit card advances, it may be better than losing your home. Consider what you have to lose in equity, and you may find that it even makes sense to cash in some of your retirement account and pay the penalty. You may also be able to borrow from your 401k.
Don’t start borrowing on credit cards and breaking into retirement funds if the situation isn’t truly temporary, however. You’ll just make matters worse. If the real problem is that the mortgage payment is just more than you can handle, you need to look at long-term solutions.
If you have maintained your credit rating to this point, you might find financing with lower payments. Lower payments can be because of lower interest rate, or a longer amortization period. Don’t be tempted into lowering your payments with an adjustable rate loan that has a low initial interest rate. Unless your income situation changes dramatically, in a year or two you’ll have the same problem all over.
Another option is to sell the home an move into a less expensive home. This works best if you have some equity in your home, to help you with both the down payment on the next one and with the transition costs. If you have no equity, you may have to consider selling your home and renting for a few years.
Already Facing Foreclosure?
If you are already late on your mortgage payments, don’t wait for things to happen. Get actively involved in solving the problem right now. You not only face being foreclosed on and losing your home, but if the home is then sold for less than you owe, you might be sued for the difference (depending on the terns of your mortgage loan). Both foreclosures and deficiency judgments can seriously affect your ability to qualify for credit in the future.
Call the lender and explain the situation. Depending on the type of loan, lenders can sometimes arrange a repayment plan (for back payments) that you can afford. They can sometimes arrange a temporary reduction in the payments, or even a temporary suspension of payments. (The latter isn’t likely unless you have been laid-off from work and have a return date.) They can even occasionally modify the mortgage to reduce the payments, by lengthening the term.
FHA and other government-backed loans have other possibilities for avoiding foreclosure. Call and talk to a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 to locate the nearest housing counseling agency. These agencies frequently have information on services and programs offered by Government agencies and lists of private and community organizations that might help you. They may also offer credit counseling, and the services are usually free.
If you definitely can’t handle the payments, consider offering the lender a “Deed-in-lieu of foreclosure,” if they’ll accept it. This is when you voluntarily “give back” your property to the lender. It won’t save your home, but it’s less damaging to your credit rating than a foreclosure. Some lenders will allow this if you have no other viable options and you have tried unsuccessfully to sell the home.
Move fast and do what you can to resolve the situation. But unless you have had an unusually long period of unemployment, or you had large unexpected medical costs, the problem is probably rooted in you poor financial habits. In that case, be sure to learn your lessons, so you can easily avoid foreclosure the next time around.