Savvy Ways to Overcome the Foreclosure Threat
Foreclosure (Photo credit: zane.hollingsworth)
Even some of the world’s high profile starlets are struggling under the threat of foreclosure. Famous actors, sportsmen and singers across America are struggling to pay their bills along with the rest of us property owners. Mortgage lenders are not left untouched by this trend because foreclosure is costly and time consuming, leaving them more willing to accept your proposed solutions than you may believe. If your loan is under water, there are several ways to cope, but all require you to tackle the issue head on. This can be scary, but ignoring an impending crisis is likely to leave you with no choice but to accept the worst case scenario. Being proactive gives you more power and freedom of choice.
Short Sale or Deed in Lieu
Approach your lender about the possibility of a short sale. Under a short sale, you’ll be selling your home for less than what you owe on your loan. You can avoid foreclosure and may be able to reduce damage to your credit rating.
If your lender is not enthusiastic about accepting a short sale, a deed-in-lieu of foreclosure is another possibility that entails offering your home to your mortgage provider in exchange for a cancellation of the loan balance.
While both tactics help you avoid a devastating foreclosure, they are not without their pitfalls. Debt cancellation is counted as taxable income; appraisals, real estate commissions, and refurbishments in preparation for a sale can be costly. To assess the viability of the solution, all these aspects need to be weighed against the returns.
Confronting Your Lender
To avoid foreclosure fees that can run up expenses, your mortgage lender is likely to be open to suggestions as long as you are willing to act early enough. In some cases, simply arranging a future lump sum payment after a monthly repayment freeze is effective. This is an option only in cases of temporary financial hardship such as short term medical problems or job loss as a couple of examples.
Changing Your Terms
Lenders prefer to receive reduced monthly payments over no monthly payments, which makes them surprisingly willing to discuss alternative terms during mortgage delinquency. If you have an amortized loan, it may be possible to extend the term, thus reducing your monthly payments.
Alternatively, your interest rate may be negotiable if your credit record has improved. Another relatively risk-free solution is to shift from an adjustable to a fixed rate, but it pays to assess market projections before doing so, since your adjustable rate will be more attractive in many cases, as Forbes explains.
Forbearance
If your finances are on hold temporarily, a formal mortgage forbearance agreement gives you enough room to recover your financial health without losing your home to foreclosure. By agreeing on a set time period, the lender and borrower temporarily suspend repayment schedules. In contrast with less formal mortgage suspension, this option suits those with fundamental monetary problems that are easily resolved given enough time.
There are many ways you can avoid the worst happening. However, the slower you react or respond to changing circumstances, the more difficult the situation becomes as time passes.
Image credits : http://www.flickr.com/photos/smemon/5537614041/
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