six ways to avoid home foreclosure when you can’t afford your mortgage loan

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Six Ways To Avoid Foreclosure When You Cant Afford Your Mortgage Loan


If you simply can not afford your mortgage loan you should act fast. What to do when you dont want to be the upcoming foreclosure next door! After all dont you see the houses in foreclosure around you? So here is what to do when you cant afford to pay what the mortgage lender wants you to pay!


1. Contact Your LenderA lot of people lose their homes to foreclosure out of sheer denial. Unfortunately, ignoring a foreclosure notice will not make the problem go away. In fact, the longer you wait, the more you reduce the options available. Thats why as soon as you run into trouble with paying the mortgage, you should contact your lender to see if you can work something out.

According to the U.S. Consumer Financial Protection Bureau, you should be prepared to discuss why you cant pay the mortgage, whether the situations only temporary and details about your income. For lenders, helping a borrower keep the home can be a best-case scenario, especially at a time when the market may already be flooded with other foreclosed properties. You can also contact the Consumer Financial Protection Bureau to talk to a housing counselor about your options.


2. RefinanceRefinancing a home can be an option, but only for buyers who arent already stretched to the max. For example, if youre on track to pay off your mortgage in 10 years, you could extend the amortization of the loan, thus making the payments smaller.

Keep in mind, however, that refinancing often includes some pretty hefty fees (for breaking your existing mortgage contract), and may also cost you more in interest over time. For those who are already overextended on the loan, refinancing may not be an option at all.


3. Apply for a Loan ModificationA loan modification is when a homeowner works with a lender to change the terms of the mortgage loan. This could mean a temporary or permanent change to the mortgage rate, term and/or monthly payment. This option is similar to refinancing, but its only open to those who can prove theyre facing great financial hardship and who are willing to advocate for themselves to a lender that is probably receiving many other similar requests.

This option is part of the Making Home Affordable Plan, which was designed to help offset some of the dishonest lending practices that left many homeowners in the lurch. However, it may take many months for borrowers to be approved for this program, so its hardly a quick fix. Plus, its only open to homeowners whose first mortgage originated before January 1, 2009, and whose unpaid balance on the mortgage is not more than $729,750. You can look into whether you qualify here.


4. Get Rid of Your HouseSometimes the best way to avoid foreclosure is to sell your home. The best way to do this is to list it the traditional way. Unfortunately, falling real estate values have taken that option away from many people whose mortgages are bigger than the market value of the property. If thats the case for you, there are two key options:

Short Sale: This is when the bank agrees to let a homeowner sell the home for less than they owe on the mortgage. The catch is that, as you can imagine, lenders arent thrilled about the idea of taking less than whats owed to them, and its up to the lender to decide whether allowing a short sale is in their best interest. This option may not be as damaging to the borrowers credit as a foreclosure, but thats only true if the creditor doesnt report the debt reduction to credit reporting agencies.Deed in Lieu of Foreclosure: In some cases, a lender will allow a struggling homeowner to sign their deed over to the bank instead of suffering a foreclosure. In this case, the borrower essentially turns the home over to the lender, who can then sell the home to recoup what theyre owed.Not that both deed in lieu of foreclosure and short sale can have tax implications. Therefore, homeowners should consult with an HUD-certified housing counselor as well as a tax professional to determine the full implications of this move.


5. Declare BankruptcyBankruptcy is no picnic. Itll destroy your credit and make it hard for you to borrow any money from anyone for many years. Plus, depending on what type of job you hold, a personal bankruptcy can even be a bad career move. That said, in a Chapter 13 bankruptcy it is possible for owners to keep their homes, but only if they have a solid plan to repay at least some of their debts. Unlike Chapter 7 bankruptcy, Chapter 13 requires that borrowers make an attempt to repay some of what they owe before the slate is wiped clean.


6. Walk AwayDuring the height of the foreclosure crisis, lenders faced a phenomenon they came to refer to as jingle mail. Owners who could no longer make their mortgage payments and had little or no equity in the property would send their keys to the lender and walk away from their homes. For those who are upside down in their mortgage and whove been unable to work something out with the lender, allowing a foreclosure to happen may be the only choice.


In recent years, many borrowers in default have managed to stay in their homes for months or even years without making payments. Thats because completing a foreclosure takes more than a year, on average, in the U.S. Plus, if borrowers choose to fight their eviction in court, they may be able to stay even longer while the case works its way through the system. Some people will argue that this just isnt fair, while others feel its the only choice they have.


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six ways to avoid home foreclosure when you can’t afford your mortgage loan

Economy & Finance