No one wants to think about or even consider losing their home. It is always important to understand the meaning of foreclosure no matter what your situation is. There are plenty of reasons why you should understand the term foreclosure. Those reasons are, you are dealing with the process yourself, you are buying a foreclosed home, or you are just looking to be prepared for anything. It is always important to be prepared.
What is Foreclosure?
Foreclosure is the process that begins when someone fails to make their mortgage payments. When a lender attempts to sell the home, the home is foreclosed upon. Your home is used as collateral when you cannot pay your mortgage, so it can be legally seized by your lender if those payments are not made.
How to Avoid Foreclosure
If you have received a notice of default, you still have time and options to avoid foreclosure.
1. Ask for Forbearance
Forbearance allows you to pause your mortgage payments in order to build up your savings or increase income. This can help you decrease potential debt if you have experienced financial difficulties.
2. Apply for a Refinance
This cannot be an option if you have already begun the foreclosure process, but refinancing can be a solution. If you are worried you are headed towards foreclosure, refinancing to a more affordable payment can help. This can only be done if you have not missed a payment yet, so not everyone can use this option. However, if you are struggling financially contact your lender and see if you can refinance.
3. Repayment Plan
Everyone has experienced unexpected circumstances arise and lenders are aware this can happen to everyone. Therefore, it is important to have a solution if certain situations arise, so your home is not foreclosed upon. If your former difficulties with your finances have been resolved you should contact your lender and see what options you may have. That option may include a repayment plan. A repayment plan usually entails that you will pay extra each month until the missed payment has been satisfied. Then you will return to paying your normal mortgage payments.
4. Mortgage Reinstatement
Similar to a repayment plan, if you have the means to pay your mortgage normally after financial hardships have passed you can ask for a mortgage reinstatement. Under a mortgage reinstatement, you will make a payment for all the payments you have missed and then your mortgage will become current.
5. Deed In Lieu
If you cannot catch up on your mortgage payments and you do not qualify for other solutions, you can still sign a deed in lieu of foreclosure. This will help you avoid the repercussions of the normal foreclosure process, and when you sign this you are giving the lender the deed to your home. You will lose your home, but it will help avoid serious damage a foreclosure would have impacted on your credit. A deed in lieu will still negatively impact your credit score, but not as badly as a foreclosure.
While this option is not the best because it involves getting rid of your home, it does not affect you as negatively as the foreclosure process would have. However, it is important to note that you may not always qualify for a deed in lieu. Your home should not be in poor condition if you are looking into a deed in lieu.
6. Short Sale
Selling your home for less than what you owe for your mortgage is a short sale. Therefore, the lender has to approve this and will 100% of the proceeds from the sale. In order for a short sale to be considered, the owner must be able to prove financial hardship for the home to be worth less than what is owed. While this is not many people’s first choice since they end up losing their home, it does release them from their debt and their credit would not take as big of a hit if their home was foreclosed upon.
How We Can Help!
At Dee Ayers, we want to help you with your mortgage. If you feel like you may be foreclosed upon or you just want to be aware of any potential risks that could be thrown your way, we are here to help. Contact us today!