If you fall behind on your mortgage payments, you could risk foreclosure. But you must act quickly, as soon as you’re concerned about your ability to repay. Don’t procrastinate and pretend it’s no big deal. You’re more likely to lose your home if you wait.
Here are 10 steps you can take to save your home from foreclosure.
- Create a Budget: List your income and expenses, including debts, interest rates, and minimum payments. This will be necessary to determine if you can save your home or file for bankruptcy protection, and it’s required by lenders for payment arrangements. Check your credit score.
- Find the money for mortgage payments: This loan is priority #1. Do whatever you can to gather the money together: get second jobs, cut back on entertainment and eating out, rent out a room, sell stuff, whatever it takes.
- Pay mortgage payments first: A lender may begin the foreclosure process following 3 to 5 missed monthly payments. Pay the mortgage payment first and then your other bills and debts.
- Try credit counseling: Lenders, the Justice Department, housing authorities, credit unions, and nonprofits may provide credit counselor lists or offer debt counseling. You can get help accessing debt assistance and managing your debt obligations.
- Refinance: If you still have equity, you may be able to refinance for a better interest rate. Research HUD refinancing and loan modification programs.
- Forbearance: Work with the lender to lower payments for a while. Your lender may agree to temporarily reduce or suspend payments, extend late payment grace periods, or allow you to skip payments. You’ll need to provide financial documents and bank statements and show that your financial hardship is temporary.
- Restructure: For more permanent financial difficulties, ask your lender if they could restructure your loan. This could mean lowering the interest rate or extending the loan term thus lowering the monthly payments. Consider the Home Affordable Modification Program (HAMP), which can help make your loan more affordable.
- Find Help: If you cannot work something out with your lender, contact HUD, which can provide a list of approved counseling agencies. FHA or VA can help if you have a FHA or VA loan. They have programs to help you keep your home. There are agencies and attorneys who can help you make arrangements with your lender or advise you about your legal rights.
- Bankruptcy: This is a drastic option because it will damage your credit score for 10 years. The lender cannot foreclose and you may have time to get up to date on the payments.
- Short Sale: A short sale is when the sale proceeds are less than what the owner still owes on the property. When a borrower owes more on the loan than the market value of the property (“upside down” or “under water”), the lender may agree to absorb the loss on the difference between the short sale price and the amount they are owed on their loan. You will have to submit a “hardship letter” explaining why you cannot make your payments.
Whatever arrangement you work out, be sure to get everything in writing. Beware of scams and con artists who prey on people facing foreclosure.
As with many difficult, unpleasant challenges, sometimes the best plan is to face the truth and systematically tackle the challenge head on. It is often the best way to minimize the damage. Map out a plan and take advantage of the available resources mentioned above.
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