Obviously, this is a scenario in which no homeowner hopes to find him or herself, as well as one which no lender hopes to pursue. Foreclosure actually costs the lender money that can’t be recouped through the sale of the property. If you’re behind on more than three or more payments, read on for strategies for avoiding foreclosure.
Initiate honest, open communication with your lender. Mortgages are big money for lenders, which is why many attempt to entice homeowners through attractive offers such as low adjustable-rate mortgages and cash-out refinancing. Because the lender doesn’t want to lose the mortgage and ultimately lose money, they will generally be willing to work with you to rectify the situation, provided that you have a history of making consistent payments with no prior serious defaults and approach the situation ethically.
Conveying accountability is essential in negotiating alternative payment arrangements. Financial experts recommend preparing a financial disclosure package to present to the lender. This package should detail your current financial situation, including all income, assets, liabilities, debts, payments, and tax returns. Experts also suggest obtaining a rough appraisal of the home’s current market value. In addition, you may wish to supplement the package with written plans for bringing the loan current and your own strategy for avoiding missing another mortgage payment.
Depending on the circumstances surrounding the delinquent mortgage, your financial status, your prior history with the lender, the home’s current value, and the strength of your financial disclosure package, you may be able to develop a loan payment plan that establishes a new, realistic payment schedule.
Sometimes lenders grant a temporary indulgence if the delinquency is caused by a temporary condition that can be remedied within a month or two. However, securing indulgence requires documentation of the condition and is most realistic for situations such as those where the home has been sold but the sale has not been settled or pending insurance settlements.
Let’s say that you or your spouse has been laid off from work and you renegotiated your adjustable-rate mortgage under low home refinance rates thinking, at the time, that you’d save money, but since then you’ve been unable to find work and mortgage rates have risen, causing your mortgage to become delinquent. In this case, you may be able to suspend or reduce payments for a specified length of time. This option, known as a forbearance plan, does not last more than 18 months on average and will often stipulate that the lender will commence foreclosure immediately if you default on the plan.
For situations in which you may have suffered a short-term loss of income but your income has since been reinstated, you may be able to finesse a repayment plan to fulfill the default payments as well as any late payments or fees within a reasonable amount of time, usually between 12 and 24 months. Experts say that for many homeowners, repayment plans are the best and most likely type of workout agreement.
Foreclosure isn’t the only option once a mortgage becomes delinquent, but it remains a looming possibility without a detailed, realistic plan to bring it current. And while mortgage lenders are sometimes willing to help out homeowners who find themselves in a bind, those homeowners who have not demonstrated consistent financial responsibility in the past are much less likely to receive assistance. By the time a mortgage becomes delinquent, a homeowner with a poor track record may find that even the above strategies are too little, too late.
If you financed your home when interest rates were higher or accepted an adjustable rate mortgage (ARM), you may want to save money by obtaining a flat rate mortgage by refinancing the house. When you originally purchased your home, you had to come to the mortgage closing table with certain documents and a down payment on the home. Whether you were aware of it or not, some of the money you paid up-front, or which the seller of the house paid for you, was due to the closing costs. Closing costs include the costs incurred for a title search to ensure the home is free and clear of other encumbrances, the cost of surveying the property, and other charges resulting from ensuring the home you are mortgaging can legally be sold to you. These charges can range from several hundred dollars to well into the thousands, depending on the services you request or which the mortgage lender requires. This payment is not used to pay any part of the principle of your mortgage loan or even the interest. It is strictly for services and documentation needed to make the sale legal and binding.
In order to learn whether it would be worthwhile for you to pay refinancing closing costs to obtain a new mortgage, you’ll need to know how much your home is worth and how much you owe on your existing mortgage as well as the interest rates available on a home refinancing mortgage loan. With this information, you can access any of the many free online mortgage calculators to determine the estimated monthly payment on a new mortgage loan. Many people find that they can obtain foreclosure help and avoid the heartbreak of losing a home through foreclosure when refinancing to a more affordable monthly mortgage payment.
Some people encounter financial situations which causes them to consider refinancing their homes. Large medical bills, college education for the children, or other unexpected situations can result in the need to refinance a home in order to access some of the equity. However, it’s important to remember that you will have to pay mortgage payments for much longer if you refinance and pull cash out of your home, so it’s recommended that you only access the amount of money you absolutely need from your home equity. On the flip side of that argument, some people refinance their home to a lower interst rate and don’t access the equity, allowing them to double up on their mortgage payments and paying their home off sooner. That’s an excellent strategy, one which allows you to refinance closing costs without much change in payment.