Foreclosure is any homeowner’s worst nightmare. Understanding what it is and how to avoid it can help you remain in a stable position of homeownership. Read the following guide to learn everything you need to know.
What Is Foreclosure?
A foreclosure is when a lender takes legal measures to repossess your home, and you must move out of the residence by a certain date.
If your previous home is worth less than what you owe on your mortgage loan, the lender could pursue something called a deficiency judgment. This means that you could owe your lender more money (in addition to losing your place of dwelling).
How Does Foreclosure Happen?
Foreclosure occurs when you stop making payments on your mortgage. It often happens to homeowners who are experiencing financial problems due to:
- Job loss
- Other debts (credit card debt, student loan debt, etc.)
- Medical problems that prevent them from working
How Can A Person Lessen Their Risk of Being Foreclosed Upon: 7 Tips
The good news? Foreclosure rates in the U.S. were at record lows in 2020 due to soaring home prices. However, it’s still possible for any homeowner to find themselves in this position if they’re enduring financial hardships.
Study the following seven tips to learn how to avoid foreclosure:
1. Take initiative.
You’re likely familiar with the common phrase, “Out of sight, out of mind.” While this saying might’ve applied to the homework you always used to put off in high school, it won’t apply to a foreclosure.
Getting further and further behind on your payments will only create a bigger hole for you to dig yourself out of. Ignoring the problem will make it harder to reinstate your loan, increasing your chances of losing your home.
Once you realize you have an issue, contact your lender. The truth is that lenders don’t want the hassle of repossessing your property. They have various options available to help borrowers get through financial hardships.
When it comes to learning how to avoid foreclosure, being proactive is a very effective method.
2. Understand your mortgage rights.
When you first bought your house, you might not have read all the loan clauses word for word.
But, if you’re in a tricky financial position, now is the time to retrieve all your loan documents. Read them thoroughly to understand what your lender is allowed to do if you default on your payments.
You should also study the foreclosure laws and timeframes in your area, as every state will have different requirements. We recommend our fellow Floridians visit the Florida Legislature’s site for more state-specific information.
3. Learn about foreclosure prevention options.
Once you understand the different laws surrounding home repossession, you can learn about your prevention options.
One of the simplest “how to avoid foreclosure” options is to ask your lender to modify your loan. Through successful negotiation, you may convince them to change the payment amount, interest rate, or other factors. Make sure to get this agreement in writing to keep them to their word.
Another option is to request forbearance. Forbearance means that your lender will halt your monthly payments temporarily. Keep in mind that this option isn’t a free pass. You must pay your debt at the end of the period, whether as a lump sum or through a predetermined repayment plan.
A final solution is refinancing. This means that you can lower your current mortgage payment by taking out another loan. If you can get a new allowance with a lower interest rate, this may be a suitable route to take.
4. Reach out to a HUD-approved housing counselor.
If you’d like professional assistance, you can reach out to a counselor from the U.S. Department of Housing and Urban Development. The HUD Department will help you understand your options and coordinate your finances. It can even connect you 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 determine where you can cut costs.
Changing your spending habits might seem hard at first, but it’s more than doable. One study found 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 life, it may be time to cut back. Reducing optional expenses will help you funnel extra cash into making your mortgage payments timely.
6. Take advantage of your assets.
If you’re in a position where foreclosure is possible, you can get creative to avoid it. Take advantage of assets you have, like antique jewelry or nonessential vehicles. You can sell items like these for cash to reinstate your loan. Additionally, you can ask someone in your household to acquire additional income, if possible.
Making efforts like these to bring in additional cash will show your lender that you’re committed to keeping your home and will do whatever it takes.
7. Don’t resort to foreclosure prevention companies.
We get it — even the word foreclosure is scary on its own. It procures feelings of uncertainty and instability, and attempting to get out of it may make you resort to desperate measures.
When you’re researching how to avoid foreclosure, you may come across foreclosure prevention companies advertising their services. However, we recommend you avoid them at all costs (the real ones and the scam ones).
A legitimate company may offer you negotiation help, but their services will come with high fees. On the other hand, a scam company will try to take advantage of your situation and make you sign an agreement with hidden intentions. It isn’t uncommon for scam companies to make desperate homeowners sign their property’s title over to them.
When Is Foreclosure Unavoidable?
Thankfully, there is a lot you can do to prevent foreclosure. However, if the payments cannot be met, it’ll become unavoidable.
The legal foreclosure process can’t commence during the first 120 days of you being behind on your payments. After this point, your lender can legally begin the process.
How to Avoid Foreclosure: Refinance Your Loan with Associates Home Loan
As we mentioned earlier, you can refinance your original loan to keep your home. Contact Associates Home Loan today to learn more about the process and determine if it’s the right move for you and your family.