If you are several months behind on your mortgage payments and are looking at the dreaded ‘F’ word, there are some options you should know about before foreclosure. Contacting your bank or lender as soon as you know you are having problems is important, as your lender does not want to go through the foreclosure process and would much rather work with you to find a possible solution. Having your home foreclosed on will affect your credit for several years, making it preferable to find another answer if possible.
Ask your lender if you are eligible for either refinancing your loan or a loan modification. If you have a high-interest rate, refinancing at a lower rate can potentially save you a lot; the higher your monthly payment the more you can potentially save. However, there are various fees associated with the process. A loan modification means changing the terms of the loan, either lowering the interest rate, extending the term to lower payments, or reducing the principal balance. Your lender may also be willing to allow you to skip a payment or two, and then add these missed payments onto the end of the loan term.
Selling your house for cash to ensure a quick sale can also be a viable option, although you may get less for your property than you anticipated. The sale is more likely to go through, and the process is also a lot faster as the buyer doesn’t have to wait to be approved for a loan. A cash sale can be closed in as little as two weeks and can avoid the foreclosure process from continuing. And many cash buyers will take your house ‘as is’ regardless of its condition, meaning you don’t have to spend money and time on repairs.
An increasing number of buyers are looking to buy property in what is known as a ‘subject to’ sale. In a subject to the transaction, the buyer purchases the property subject to the mortgage that is already in place, rather than actually assuming the mortgage. This can be another way to prevent foreclosure as the process is a lot faster than a regular sale, and has more chance of going through.
Filing for bankruptcy is also something to be considered if you are faced with having your home foreclosed on, although a bankruptcy will be on your credit report for at least seven years. However, filing bankruptcy before the foreclosure is actually filed may give you what is known as an automatic stay, meaning that you at least get to stay in your home. Other creditors are also obligated to stop calling and asking for payments and must stop any collection process.
The above are some of the most common solutions for homeowners facing foreclosure. It can’t be stressed enough how important it is to actually communicate with your lender sooner rather than later; most lenders won’t begin foreclosing until you are several payments behind, but you don’t want to wait that long.