Article stats: Views: 538 Votes: 1 Average: 5.00 Added: 2006-09-19 Updated: 2006-09-21 | |
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Foreclosure occurs when the homeowner falls behind in monthly mortgage payments and defaults on the loan. The lender repossesses or sells the home in order to satisfy the debt.
The best and most sensible way to avoid falling into default and having the lender foreclose on you is to make timely mortgage payments. Several steps can be taken to ensure your capability to pay your mortgage on time each month.
Strategies to employ to safeguard against default
1. Purchase only what you can afford.
2. Shop around for the best possible mortgage term and rates.
3. Steer clear of non-traditional mortgage loans.
4. Live within your means.
5. Set up a financial budget and stick to it.
6. Set up a rainy day fund for mortgage payments in case of a financial set back.
7. Prepare for the unexpected and plan financial changes accordingly.
8. Don’t count on tomorrow’s income. Realize that your income may stagnate while your debts increase.
What to do if a foreclosure occurs
Circumstances change constantly. The financial climate fluctuates almost as frequently as the weather. Unexpected medical costs, a death in the family, the loss of a job- all of these can negatively impact on the financial situation of a homeowner. Therefore, the worst possible event, a foreclosure, might occur.
A foreclosure will have a negative impact on your credit rating and have long reaching impact into your future borrowing ability. Avoid foreclosure at all costs, even if it means giving your home to the lender. Either way you lose your home, but with the second, you maintain some credit worthiness.
Borrow money from friends and family to catch up on your mortgage payments. Only do this if you intend to fully pay them back and believe that you will have the means to do so. Agree to a realistic date for repayment of the personal loan.
Contact a housing counseling agency that has been approved by HUD. In general, these agencies provide free counseling. Additionally, they might be able to offer government services or programs that can help you out of this situation. In some locations, they might be able to direct you to local community organizations that give assistance to homeowners in need.
Contact your lender immediately and respond to any correspondence that you have received from them. Explain your current financial situation, the immediate outlook of your finances, and your need to rearrange your payment schedule. Bring supporting documents with you when you speak to your lender. This will help to show your sincerity.
Lenders may often attempt to remedy the situation with a little creative financing rather than go through the process of a foreclosure. After all, the lender simply wants to have the loan repaid.
Possible remedies to the foreclosure
A mortgage modification happens when the lender changes the term of the loan by adding additional months or years to the mortgage. In turn, this will lower the monthly payments and prevent a foreclosure. Again, the borrower must be able to show evidence that he will be able to meet the new payments.
A special forbearance is a process in which the lender arranges a repayment plan that works within the borrower’s current financial status. This might lead to a suspension of the monthly p...
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