Foreclosure is any homeowner’s worst nightmare. Being aware of what it is and how to avoid it can help you stay in a reliable position of homeownership. Browse the following guide to learn all you need to know.
What Is Foreclosure?
A foreclosure happens when a lender takes legal measures to repossess your house, and you must move out of the residence with a certain date.
If your previous home is worth less than your debts on your home loan, the lender could pursue something called a deficiency judgment. Which means that you can owe your lender more money (in addition to losing your place of dwelling).
How Does Foreclosure Happen?
Foreclosure occurs when you stop paying in your mortgage. It often happens to homeowners who are experiencing financial problems because of:
- Job loss
- Other debts (credit card debt, education loan debt, etc.)
- Medical issues that prevent them from working
- Divorce
How Can A Person Lessen Their Risk of Being Foreclosed Upon: 7 Tips
The good news? Foreclosure rates within the U.S. were at record lows in 2020 because of soaring home values. However, it’s still possible for any homeowner to find themselves in this position if they’re enduring financial hardships.
Study the following seven ideas to learn to prevent foreclosure:
1. Take initiative.
You’re likely familiar with the common phrase, “Out of sight, out of mind.” Although this saying might’ve applied to the homework you always accustomed to put off in high school, it won’t affect foreclosures.
Getting further and further behind on your payments will only produce a bigger hole for you to dig yourself too much of. Ignoring the issue can make it harder to reinstate your loan, upping your chances of having your home repossessed.
Once you realize you have an issue, contact your lender. The fact is that lenders don’t want the hassle of repossessing your home. They have various possibilities to help borrowers cope with financial hardships.
When it comes to finding out how to prevent foreclosure, being proactive is an extremely effective method.
2. Understand your mortgage rights.
When you first bought your house, you will possibly not have read all the loan clauses word for word.
But, if you’re in a tricky budget, now is the time to retrieve all of your loan documents. Read them thoroughly to know what your lender is permitted to do if you default on your payments.
You should also study the foreclosure laws and timeframes in your town, as every state may have different requirements. We advise our fellow Floridians visit the Florida Legislature’s site for more state-specific information.
3. Find out about foreclosure prevention options.
Once you realize the various laws surrounding home repossession, you can study about your prevention options.
One from the simplest “how to avoid foreclosure” options would be to ask your lender to modify your loan. Through successful negotiation, you might convince these to alter the payment amount, rate of interest, or other factors. Be sure to understand this agreement on paper to keep them for their word.
Another choice is to request forbearance. Forbearance implies that your lender will halt your monthly obligations temporarily. Keep in mind that this method isn’t a totally free pass. You have to pay your debt at the end of the period, whether as a lump sum or via a predetermined repayment plan.
A final solution is refinancing. This means that you can decrease your current mortgage payment if you take out another loan. If you're able to customize the allowance with a lower rate of interest, this is usually a suitable route to take.
4. Reach out to a HUD-approved housing counselor.
If you’d like professional assistance, you can get in touch with a counselor in the U.S. Department of Housing and concrete Development. The HUD Department will help you understand your options and coordinate your finances. It may even hook you up with someone to negotiate with your lender on your behalf.
5. Get your spending in check.
After food and healthcare, housing should be at the top of your budgeting priorities. Analyze your spending habits and see where you can cut costs.
Changing your spending habits may appear hard initially, but it’s more than doable. One study discovered that the average American spends almost $20,000 on non-essential items. While your Spotify account and personal gym membership might be your little luxuries in everyday life, it may be time for you to reduce. Reducing optional expenses will help you funnel extra money into making your mortgage payments timely.
6. Take advantage of your assets.
If you’re in a position where foreclosure is possible, you will get creative to prevent it. Make the most of assets you have, like antique jewelry or nonessential vehicles. You can sell items like these for money to reinstate your loan. Additionally, you can ask someone in your household to get additional income, if possible.
Making efforts such as these to bring in additional cash will show your lender that you’re dedicated to keeping the home and can do whatever needs doing.
7. Don’t resort to foreclosure prevention companies.
We have it — the word foreclosure is scary on its own. It procures feelings of uncertainty and instability, and attempting to get free from it might make you turn to desperate measures.
When you’re researching how to prevent foreclosure, you may encounter foreclosure prevention companies advertising their services. However, we recommend you avoid them at all costs (the real ones and also the scam ones).
A legitimate company may offer you negotiation help, however their services includes high fees. On the other hand, a gimmick company will try to take benefit of your situation thus making you sign a contract with hidden intentions. It isn’t uncommon for scam companies to make desperate homeowners sign their property’s title to them.
When Is Foreclosure Unavoidable?
Thankfully, there is lots you can do to avoid foreclosure. However, if the payments can't be met, it’ll become unavoidable.
The legal foreclosure process can’t commence during the first 120 days individuals being behind on your payments. Following this point, your lender can legally begin the procedure.
How to prevent Foreclosure: Refinance The loan with Associates Home Loan
As we mentioned earlier, you are able to refinance your original loan to maintain your home. Contact Associates Home Loan today to find out more about the procedure and determine if it’s the best move for you and your loved ones.