Foreclosure happens when you aren’t able to make your mortgage payments and your lender takes control of your home. The lender will give you notice to leave the property, and sell your home to pay back what you owe them. Foreclosed homes hurt your credit score and should be avoided at all costs. This article explains 10 things that you can do to keep the ball in your court and avoid foreclosure.
1. Refinance
If you have enough equity in your home you may be able to refinance, in which case missed payments would be calculated into the balance of the new loan. This option is much less detrimental to your credit score than foreclosure. Refinancing is best done before the foreclosure process begins otherwise lenders will most likely be set on getting you off their books.
2. Forbearance
If you have a good track record with your lender, they may accept a forbearance agreement based on temporary hardship. This will temporarily suspend payments, allowing you to make up your shortcomings within the terms of the forbearance agreement. The lender will not pursue foreclosure during the time of this agreement.
3. Repayment Plan
Another option if you have a good track record with your lender is to ask for a repayment plan. This will take the amount owing and split it over future payments. This will usually be granted if you can explain why your hardships are temporary and can show a budgeted plan on how you are going to repay the existing amount through future payments.
4. Modification
If you are unsure about the longevity of your economic hardship, loan modification may be a better option for you. Your loan provider may be able to modify the terms of your loan so that you pay a more affordable amount over a longer period. You should be prepared with a budget of how much you can afford to pay each month under the modified agreement.
5. Short-Sale
Short-sale is the most common practice for people trying to avoid foreclosure. This is where you sell your property for less than the amount remaining on your loan, but at a price your loan provider will accept. While this won’t provide you with any capital, it will be much less detrimental to your credit score than foreclosure.
6. Partial Claim
If you have private mortgage insurance or an FHA loan (and meet HUD’s guidelines), you may be able to get a partial claim. This is usually an additional interest free loan that you can use to pay off your mortgage during temporary hardship. This second loan will usually have to be repaid once the original mortgage is paid off or when you sell the property.
7. Deed in Lieu
This is where you voluntarily hand over your property to the lender without going through the foreclosure process. This will have a less negative impact on your credit score and if the property being transferred is your primary residence, you may be eligible for relocation assistance.
8. Forgiving a payment
While unlikely, your loan provider may agree to forgive a loan payment if you can prove that you will be able to continue with your current mortgage plan moving forward. This sometimes happens if you have incurred a large, one-time, unexpected expense that has left you low in capital. If you can show that you have the income to support your future payments, while rare, the lender may forgive the payment.
9. Making Home Affordable
It is important to know that there are many federal programs dedicated to helping people who are struggling to make their mortgage payments. Making Home Affordable can show you different programs such as the Hardest Hit Fund (HHF), Home Affordable Refinance Program (HARP), Home Affordable Modification Program (HAMP), and many others that could help provide assistance in making your mortgage payments.
10. Get a grant from HomeOptions
By signing up with HomeOptions, you will receive up to $2000 which can help you to make urgent mortgage payments. You never have to pay this money back. You never have to sell but if you continue to worry about mortgage payments and would like to sell in order to avoid hurting your credit score, you will have access to HomeOptions’ top real estate agents who are known for selling homes over asking. This way you will have some capital to play with when looking for a new home.
It is always important to remember to keep an eye on your finances. All the options presented above are much more likely to be successful before pre foreclosure. Take action early so that you can do everything you can to keep your options open, your credit score intact, and avoid foreclosure.