Foreclosures in the US have gone up 22% this quarter compared to last year. This trend is due to unemployment, economic challenges, and backlogged foreclosures after the pandemic.
If you’re facing a home foreclosure, you’re not alone. Although it may feel hopeless, there are steps you can take to get back on track. But you need to act fast by learning more about foreclosures and the options you have to stop them from occurring.
Keep reading this guide to learn how to prevent a foreclosure on your home!
What Is Foreclosure?
Your first step is to get a better understanding of what a foreclosure actually involves.
Foreclosure is a legal process that banks and mortgage lenders go through to minimize their losses when borrowers stop making mortgage payments.
Remember, when you take out a mortgage for your home, you agree to make monthly payments for the entire mortgage term. If you can no longer make your payments due to financial issues, the lender will take the property back and attempt to sell it.
If your home goes into foreclosure, you’ll eventually face eviction, which will seriously affect your credit score.
How Can You Stop a Foreclosure?
Obviously, the best way to stop a foreclosure is by making your monthly payments on time.
You must look honestly at your finances to see if you can continue making monthly payments. If you’ve only missed one payment, you might be able to catch up by using savings or taking on another job.
Gather your mortgage documents and review your budget carefully.
You should then look at options like:
Refinance Your Mortgage
If you’ve lost income due to job loss or another life change, you could look into refinancing your mortgage. Refinancing is best for anybody who can still make payments but is starting to feel the burden.
If you still have good credit, refinancing often makes sense. Many people refinance for a lower interest rate or a shorter mortgage term. Refinancing can also help you consolidate debt by tapping into your home’s equity.
Remember, refinancing isn’t free, costing up to 6% of the loan’s principal. You also have to pay for an appraisal and various application fees.
If you can refinance and get a rate at least 1 to 2% lower than your current rate, then it’s worth the effort and cost in the long run. Otherwise, it’s better to look at other options.
Talk With Your Mortgage Lender
Talk to your lender and let them know you’re experiencing temporary financial problems preventing you from making your mortgage payments.
Lenders often create a repayment plan that allows you to get your past-due loan current. However, you must ensure you won’t have problems making future payments.
Usually, repayment plans involve taking the past due amount and tacking it on in increments to future loan payments.
Make sure you don’t agree to pay more each month than you’re comfortable with. If the repayment plan doesn’t feel like something you can handle, be sure to ask about other options.
Get a Forbearance
A mortgage forbearance allows people with financial struggles to put a hold on mortgage payments temporarily.
A forbearance provides the short-term break you need from mortgage payments and can prevent you from going into foreclosure. A forbearance typically lasts up to six months, allowing you to miss your monthly payments without penalty.
However, in addition to your regular payments, you’ll need to be prepared to pay the entire balance once the forbearance ends. You can do that in one lump sum or devise a repayment plan with your lender.
All you need to do is talk to your lender to determine your eligibility for a forbearance. Since forbearance is an official agreement with your lender, you won’t have issues with your credit score. In most cases, your lender will report your loan as current.
Consider a Mortgage Deferment
A mortgage deferment allows you to take all past-due payments and move them to the end of the loan. This means all past-due payments and taxes must be paid in full by the end of the loan term.
You may qualify for a mortgage deferment if you have a forbearance. Ultimately this depends on the lender, but you’ll often be allowed to move the past due amount to the end of your loan after the forbearance ends.
Like a forbearance, deferment won’t impact your credit score. If you choose to get a forbearance and deferment, be sure you make your payments on time. If you miss even one payment, your lender could decide to proceed with the foreclosure process.
Apply For a Loan Modification
A loan modification allows you to modify the term of your current loan. A loan modification may be an option if you’re not eligible for refinancing. Loan modifications give you more affordable payments, helping you to stay current on your monthly payments.
Most loan modifications last for the length of the loan term, giving you time to pay off the loan. It also allows you to change your interest rate and loan type.
Depending on your lender and loan type, there are different types of loan modifications. You must contact your lender, complete a loss mitigation application, and show proof of finances.
See a Mortgage Lawyer
If you’re a few months late on your payments and none of these options work for you, your lender will begin foreclosure.
In this case, you’ll need to find an attorney that practices mortgage law in your area. This is because the way the foreclosure process unfolds depends on your state’s foreclosure laws.
A mortgage lawyer can explain these laws and let you know your options. A lawyer can also analyze your debt and help you make the best decision possible. They can even help you with mortgage reinstatement, along with mortgage insurance and mortgage protection options.
If you’re not able to pay off your debts, an attorney can help you file for bankruptcy.
Follow These Tips to Avoid Home Foreclosure
Following these steps to avoid home foreclosure will help guide you throughout the process.
You’ll better be able to consider your options and make the best choice for your financial situation. Remember to learn everything you can about mortgage law to understand your rights.
Be sure to check out the rest of our blog to learn more financial tips and tricks.
