If you’re stressed about possible foreclosure, there’s good news for you. On March 28, 2020, the federal government announced a measure to halt foreclosures, providing at least a 60-day freeze on legal action to distressed homeowners.
The Department of Housing and Urban Development (HUD) directed the Federal Housing Authority to issue a moratorium on foreclosure and eviction for single family homeowners with FHA-insured mortgages.
What does this mean for you? If you’re facing foreclosure, the federal government just gave you a huge break. Use this opportunity to sit down and think over your options and then get ready to start fresh on your mortgage!
First Things First
Gather up all the records related to your home. Make a file and put your original loan documents in it. Also include information about escrow accounts, your monthly mortgage statements, your payment records, property tax information, and insurance. You should also include any correspondence between you and your lender such as letters the bank has sent you or letters you’ve sent them.
After you’ve organized your mortgage documents, you should now sit down and actually read through everything. You may or may not remember it, but that mountain of paperwork you signed when you closed on your home tells you what action your lender will take if you default on your mortgage payments.
In most cases, federal law prevents lenders from starting foreclosure until the homeowner is 120 days late with mortgage payments. Because of COVID19, you have at least 60 more days to work out your foreclosure with your lender.
Study your loan and mortgage information and take notes. Write down when the bank can start foreclosure, whether you can reinstate the loan by catching up on the late payments, and what fees the bank will charge for any delinquencies.
Check Your Budget
It’s time to get real. Set aside any wishful thinking and focus on the facts. Gather your financial information. Pull all your income or asset information, like paystubs, banking/savings statements, investment information such as annuities and retirement fund statements, and any additional documentation of income. Next, pull your monthly expense information.
Make a list of all monthly income and expenses and determine where you are financially. Review your spending habits. Try to make a realistic budget that you can follow until your financial circumstances improve. Note what you can cut out of your monthly expenses to save money for now. You’ll want to make meaningful and realistic cuts to your expenses. Consider things like eating lunch out every day or stopping for coffee on your way to work. Do you really need the big cable TV package? What about the gym membership and other subscriptions?
Consider all your income and expenses and what you can save by trimming down expenses and if and how you can improve your income.
Know Your Foreclosure Options
You have many options to avoid foreclosure. Some foreclosure options include:
- Loan Modification. A loan modification permanently changes the structure of your loan. Examples include extending your loan term, giving you more time to pay off the mortgage. This can reduce your monthly payment and also allow you to catch up on past due payments and late fees by adding those charges into your loan balance. Depending on your current interest rate, a loan modification can dramatically reduce your monthly payment if the bank offers a better rate.
- A forbearance agreement temporarily suspends your mortgage payments for a set period of time. This may give you time to catch up on your expenses and at the end of the forbearance period, you can bring your loan current by paying the missed payments and fees or you may modify the loan permanently.
- Refinancing. If you’re not yet behind on your mortgage and you’re managing to pay your monthly bills, you may want to consider refinancing your loan. This option works well for homeowners who know they are struggling but have not yet defaulted on any loan obligations. This allows you to qualify for the best interest rates, and a lower rate can substantially reduce you monthly mortgage payment. If you have unused equity in your home, consider taking out a home equity loan. You can use some of your equity to pay down other outstanding debt such as credit cards or auto loans. Anything you can consolidate into a smaller payment or better interest rate helps you get on top of your finances.
The Bottom Line
If you’re motivated to keep your home, there are many foreclosure options available to you.
Reach out to your bank as soon as you realize that you are in financial trouble. Your lender has many ways to help you, and they are just as motivated as you are to keep you in your home.