Foreclosure: What it is and How to Avoid it!

What is Foreclosure?

If you are unable to keep up with your mortgage payments, you may go into foreclosure. Foreclosure is when the mortgage lender takes over ownership of your home and resells it to get the money back that they loaned you.

Preventing Foreclosure

Obviously, to prevent losing your house back to your mortgage lender, you need to keep up with your payments. There are circumstances, however, that may prevent you from having the ability to do so. HUD (U.S. Department of Housing and Urban Development) says that if you work closely with your lender, keeping them informed of your financial status during times of crisis, and work with a housing counseling agency, you may increase your chances of keeping your home even during financial hardships.

Keep Your Home

If you become unemployed, disabled, or have other extenuating circumstances that prevent you from being able to make your monthly mortgage payments on time, there are a few possibilities that might save your home for you. Some lenders will work with you and set up a special forbearance option during times of financial hardships. College loans often will let you defer your payments or apply for forbearance if you are without a job or have little income temporarily- and some mortgage lenders are now offering the same options to homeowners. There are lenders that are willing to reduce your monthly payments, or suspend them for a specific period of time while you look for another source of income. This is helpful to individuals who have had decent income all along, and then just find themselves without a job or temporarily disabled. Refinance your existing mortgage to obtain lower monthly payments if you’ve had a reduction in your income level. For example, if you’ve been demoted or had to change jobs, or have some other reason to have a decrease in your income, it may be worthwhile for you to refinance your mortgage and take advantage of lower interest rates or extending your mortgage term in order to reduce payments. If you meet criteria set by HUD , you may be able to obtain an interest-free mortgage loan. Paying principal only will drastically reduce your monthly payment, and may make it possible for you to continue paying your loan and keep your home.

Avoid Foreclosure and Bad Credit

If it is just not feasible for you to keep your home, you may still be able to avoid foreclosure and the bad credit ratings that are a result of foreclosing on your home. If your home is appraised for at least 70% of the total amount you still owe on your mortgage, than you may be eligible to sell your property and use that money to pay off your mortgage. This is called a pre-foreclosure sale , and there are certain criteria and qualifications that you must meet in order to do this and avoid foreclosure. Another option is to give your home to the mortgage lender rather than let them take it from you in a foreclosure. Deed-in-lieu of foreclosure allows individuals who meet specific requirements to avoid the credit problems associated with foreclosure.