Nobody wants you to foreclose on your home. You don’t want to do it because it means losing the place you live and having to endure the negative impact on your credit score and financial well-being. Your bank doesn’t want you to do it because it’s more interested in receiving monthly payments from you than it is in gaining a house. We don’t want you to do it because we understand the difficulties it will bring for you and your family. Fortunately, you have a few options when it comes to preventing foreclosure.
When to Take Action
The inability to make your mortgage payments can make you feel helpless. But, there is a way to take control of the situation: Contact your lender as soon as you know you have a problem. In the long run, it’s best to be proactive about your mortgage and the possibility of foreclosure. Ideally, the best time to contact your lender is before you miss a payment.
Work With Your Lender
If you know that you want to stay in your home, you can work with your lender to come up with a solution for preventing foreclosure. In many cases, working with your lender means adjusting your monthly mortgage payments to something more in line with what you can afford. Depending on the type of mortgage you have, you might qualify for a government program, such as the Home Affordable Modification Program (HAMP) or the Home Affordable Refinance Program (HARP). Either program can reduce the amount you owe by reducing your interest rate or by capping your payment amount to no more than 31 percent of your gross income.
If you aren’t eligible for a modification or refinancing, you can still work with your lender to prevent foreclosure. Your lender might be willing to give you a forbearance on the loan, meaning you don’t have to make payments for a set amount of time. A forbearance can give you a chance to get back on your feet, which is helpful if your hardship is only temporary.
One option that will have an effect on your credit score, but is still preferable to foreclosure, is to work with your lender to come up with a repayment plan. This option can be helpful if you’ve already started to fall behind on payments. With a repayment plan, you and the lender agree to terms that let you add the payments you missed onto future loan payments until you are caught up.
Try a Short Sale
Even if you no longer want to live there, it’s still in your best interest to do what you can to avoid foreclosure. If your home is currently worth less than you owe on the mortgage, you can try to get the bank to agree to a short sale. According to Fannie Mae, when you choose a short sale, you sell the home for its market value, which is usually less than you owe. The bank often agrees to take the amount of the sale and let you off the hook. Keep in mind that a short sale will affect your credit score, but its impact will be much less damaging than a foreclosure.
A Housing Counselor will be able to discuss these options with you and help you develop a plan to avoid foreclosure. No matter which option you choose, being proactive and upfront about your mortgage troubles with your lender can help you avoid the heartbreak and headache of foreclosure.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY