Mortgage Options to Avoid Foreclosure
- Situations can change quickly and when income shifts, borrowers may come to the conclusion that they're no longer able to afford their present home loan. Rather than sell the property or walk away from the home, mortgage lenders may consider adjusting the home loan terms and reducing the monthly payment or interest rate to create an affordable payment. Borrowers must meet their lender's modification requirements, which usually involves having a mortgage that exceeds 31 percent of their income and being behind on payments.
- Quickly finding a buyer for the property can stop a foreclosure and save the borrowers' credit rating, which enables them to qualify for another property in the future. Talking with their mortgage lenders, borrowers can request a short sale, wherein the lender forgives a portion of the debt. By forgiving this debt, borrowers can sell the property for less than what they owe. Dropping the sale price will likely attract buyers.
- Mortgage and money problems aren't always permanent. Being out of work for a few weeks or months can put a strain on finances. But rather than selling the property, mortgage lenders may review a borrowers circumstances. If the borrower qualifies, lenders will grant a forbearance and temporarily suspend payments for a certain number of months. Forbearance only benefits borrowers who foresee an increase in income within the upcoming months.
- Paying a mortgage on time every month doesn't necessary mean a borrower is able to afford the payment. Some homeowners spend all their income on their home loan payments, whereas others can barely afford the payment. One financial mishap increases the risk of foreclosure. However, refinancing the mortgage loan and acquiring a better interest rate and lower payment reduces the financial burden and decreases the risk of losing the property. Refinances require a good credit score.
- Foreclosures cause significant damage to a borrower's credit rating, and it may be years before they're able to get a new mortgage loan. On the other hand, borrowers can negotiate a deed in lieu of foreclosure with their lender and do a voluntary repossession. Borrowers give up all rights to the property and avoid foreclosure. According to RealtyTrac, a deed in lieu of foreclosure may not affect a borrower's credit, especially if the lender reports that the mortgage was paid in full. But even if a lender reports the voluntary repossession, the repercussions are far less severe than a foreclosure proceeding.