Many homeowners believe that refinancing is a good option when trying to avoid foreclosure. This is often a good idea, if you have equity in your home and if you refinance before your credit is ruined by the mortgage delinquency. The problem is that most borrowers do not fall into this category. Most foreclosure victims have extremely poor credit and no assets. This means that most people face foreclosure and miss out on important alternative opportunities when trying to apply for a foreclosure loan.
A better solution is a mortgage modification with your current lender. This is when the terms of your existing mortgage are modified to produce a lower monthly payment. In essence, it’s like a refinance, but your credit and equity aren’t a major determinant, like a refinance. In most cases, the interest rate is reduced and the loan term is repaid at a fixed rate of 30 years. In some cases, the principal amount of the loan is even reduced to meet the target payment.
In some cases, simply asking your financial institution for a loan modification will work. But most of the time, you will need to hire a professional negotiator to work on your behalf. When you hire a professional, make sure you don’t pay money up front or if you do, it will go into an escrow account until the process is complete. If you’re not getting results, you shouldn’t have to pay for your services! Do your homework and be careful that you are not taken advantage of. There are new laws to protect homeowners, but criminals will always be there to steal your money if you let them.
When you work with your financial institution, you will need to complete a loss mitigation package when you try to modify your mortgage. This will help them determine your qualifications. This is where a professional will come in handy, as getting rejected can be final. It is important to present a complete package and that it can be approved without delay. You may be asked to provide proof of income, just like you did when you got the original loan. Whether or not things have changed with your income is one of the things that financial institutions will look at.
If the value of your home has fallen and you are “upside down” on your mortgage, then you need to decide if keeping your home is the best decision. As I said earlier, you may qualify for a mortgage modification with a principal reduction, but selling the house may be your best option. When you’re upside down on your mortgage, a short sale can be an easy way out. A short sale is when the home is sold for less than the liquidation amount and the lender forgives the remainder.
However, short sales can be tricky, because your lender will not readily accept this solution and you may file for a deficiency judgment after the home is sold. It is very important to get your judgment in writing and make sure that you waive your right to request this deficiency judgment at a later time. We never recommend homeowners attempt a short sale on their own. Professional short sale negotiators or real estate agents who specialize in this type of sale are available at little or no cost to the homeowner, so take advantage and make sure your rights are protected.
Regardless of what you choose, it’s important to know that you have options and letting the house go into foreclosure is never a good idea. Your credit will suffer for years to come and buying a new home will be virtually impossible until you’ve recovered. Don’t be afraid to ask for help or hire a professional to help you navigate these difficult times.
