How do you avoid foreclosure? Of course, the best option is always to pay your loan on time. With this you will never have a problem with foreclosure but what if things go bad?
Avoid Foreclosure and Stay in Your Home
Whenever you start feeling that there might be some short term or long term financial difficulty coming your way, it is best to plan ahead. Always take precautions to save your home and avoid foreclosure. You might be eligible for a refinance or modify your mortgage loan. A modification can include lowering your payment and making it more affordable. The solution depends on your current situation and among them are:
- Refinance. Acquire a new loan with new terms, interest rates and monthly payments—that completely replaces your current mortgage. This can inevitably decrease your home value or be more than what your home is worth. The good thing here is that you stay in your home and avoid foreclosure. Refinancing is part of the government’s Home Affordable Refinance Program (HARP).
- Repayment Plan. Your mortgage company wants to maintain good business, that is why they do not want you to have problems. Do not hesitate to talk to them and discuss your options. It is possible that both of you can come up with a plan which helps you bring your mortgage current.
- Forbearance. This is an offer by your mortgage company to temporarily suspend or reduce your monthly mortgage payments for a specified period of time.
- Modification. This is another option and constitutes an agreement between you and your mortgage company. The goal of the agreement is to change the original terms of your mortgage—such as payment amount, length of the loan, interest rate, etc.
Remember that all of the above will have a negative effect on your credit score but they are less damaging than a foreclosure.
Leave Your Home But Avoid Foreclosure
Foreclosure has a very damaging effect on your credit score, thus the best way is to avoid it. Here are some options that let you leave your home and avoid foreclosure:
- Short sale. This is a method in which you sell your home for less than the balance remaining on your mortgage. In order for you to do this, you need the approval of your mortgage company. Upon sale, you can pay off all or portion of your mortgage balance with the proceeds.
- Mortgage Release (Deed-in-Lieu of Foreclosure). Through this method, you transfer the ownership of your property to the owner of your mortgage in exchange for a release from your loan and payments.
Get a Reverse Mortgage
For those age 62 and above, you can get a reverse mortgage. This means that you can receive money by borrowing against the value of your home. The payments you receive along with accrued interest and other charges increase the loan’s balance and decrease your equity in the property.
Most reverse mortgages are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. As long as you live in the home as your primary residence, maintain the home and pay homeowner’s insurance, property taxes, and homeowner’s (sometimes referred to as “HOA” fees) and/or condo association dues (if applicable), the loan does not have to be repaid.
Remember that there are various options to avoid foreclosure. Use these methods in order to maintain a good credit score and of course save your home.
For the full information, you can also read the full detailed article from KnowYourOptions.
Recommended Reading: Homeowners’ Guide to Success