Prior to the mortgage crisis of 2008 and the recession that followed, lenders had been offering mortgages with low teaser rates for the first few years. While these low rates allowed thousands of homeowners to afford a new home, there are now many home owners holding loans with these low starter rates that have either reset or are about to. Many home owners now find themselves in a position where they cannot afford to make their new monthly payment.
Act now to forgo foreclosure.
If you find yourself in this position, and are facing difficulties with your loan, remember that the ultimate goal is to maintain your credit rating. There are a number of actions you can take.
Some options to consider to avoid foreclosure.
If you find yourself in this situation, you may be able to negotiate with your lender, you may be able to refinance or you may be forced to sell your home now in order to buy one in the future. The sooner you address the issue the more options you will have. By getting your finances in order you will be able to get on with your life sooner.
Don’t add to your stress by ignoring your fiscal situation; follow these steps to getting back on track:
Know the details.
Go over all your loan documents so that you are prepared for any upcoming resets or changes. When will your payments increase? By how much? Can you refinance? What kind of penalty would you face, if any? Cut in other areas – can you take a roommate or a second job to help make your payments? You may need to look at significant changes in your spending and lifestyle. Do not make any major purchases at this time, and look at liquidating other assets, such as cars or boats, to help meet your payments.
Contact your lender.
You should take the initiative with your lender. Contact them before the problem becomes overwhelming. If you receive calls or letters from your lender respond to them as soon as possible. Do not wait to get too far behind – lenders are less likely to move quickly into foreclosure if you are proactive. You want to speak to the right people – ask for the loss mitigation or collections department. Be honest with them about your situation and don’t make promises you can’t keep.
Beware of foreclosure “rescue” schemes.
There are a number of scam artists targeting people in neighborhoods where foreclosure rates have been high. They approach troubled homeowners with promises to help them keep their houses. These “rescues” often come with payments that are out of reach of the average homeowner and result in homeowners being defrauded of their homes, sometimes still owing the original mortgage amount.
Any company that approaches you with such an offer should be checked out through the Better Business Bureau, your state real estate commission and Attorney General. Do not sign anything without reading it all, get all promises in writing and ask your attorney or a financial professional to review any paperwork before you sign it.
There are nonprofit groups offering free housing advice for more information and counseling. Make sure they are legitimate and give them a call. They may be able to help you with your options.
If all else fails, negotiate a short sale.
If you have missed more than two payments but your home has not yet gone into foreclosure, you may be able to sell it for a price that falls short of what you owe the lender. If your mortgage holder agrees to accept the price and forgive the rest of your debt, they forgo the costly foreclosure process and you walk away with minimal damage to your credit score. You can chalk it up to experience, save up a down payment and buy low.