Typical home financing involves a buyer finding a home and applying for a mortgage, getting…
If you’re struggling to stay current on your mortgage, you should know what you can do to prevent foreclosure on your home. Be proactive and take the proper steps to prepare for what’s ahead when you fall behind on your mortgage and what you can do to stop it.
Your mortgage lender does not want to own your home. It’s in the bank’s best interest for you to continue making your house payments. If your home is at risk for foreclosure, your lender will likely want to work with you to find a way to keep your property.
Gather your original loan documents. Create a file that includes:
- Your mortgage or deed of trust and your monthly mortgage statements
- Records of monthly payments
- Escrow statements
- Property tax statements
- Insurance information
- Copies of any correspondence from or to your lender
Once you’ve collected this information, read through it all so that you have a thorough understanding of what is going to happen when you do not pay your mortgage. Your mortgage should explain the steps they will initiate if you fall behind on your payments. You may be able to prevent foreclosure by reinstating your loan. A reinstatement allows you to catch up on your missed payments. Your mortgage will explain the fees that will be assessed when your mortgage lapses.
Get out a tablet and start by writing down all your expenses. List them in the order of their importance, with your monthly house payment at the top of the list. Your home is what lenders refer to as a “priority debt.” This means that the mortgage gets paid before all other bills. Review vehicle loans and credit cards. List the amount of the minimum monthly payment for credit cards and the average monthly amount for utilities. You should also include variable expenses, such as groceries, gasoline, and childcare. Finally, write down the source and amount of all monthly income.
It’s important to create a firm budget. You need to look at your expenses with a critical eye. What can you eliminate or consolidate? Can you combine credit card balances on to one card so that you only have one payment as opposed to multiple payments? Do you have any savings that can pay off a vehicle? Can you reasonably work a second job to cover expenses? Would you consider taking on a renter to help with monthly expenses? Is your current financial situation a temporary one? These are all important questions that deserve careful consideration. You should be prepared to explain to your lender where you are financially, and present a reasonable plan to bring you mortgage current.
Know Your Options
In most cases, federal law prevents a lender from starting a foreclosure until you are more than 120 days delinquent on your mortgage. This doesn’t mean that you have 120 days to avoid paying your mortgage. It means that you have a couple months to gather your information and contact your lender if you want to prevent foreclosure. There are various options that you may be qualified to pursue.
- Loan Modification. You may be able to permanently modify the terms of your mortgage. This may include extending the time you have to pay the loan or reducing the interest rate. Your lender can often add any past due amounts to the balance of your modified loan.
- Repayment Plans and Forbearance. Your lender may agree to suspend or reduce your mortgage for a period of time if the reason you are unable to pay it is temporary. At the end of this period, you can either bring the loan current with a repayment plan or a loan modification.
- Refinance. If you’re not behind on your payments, ask about refinancing your mortgage for a better interest rate or term.
Contact Your Lender
It’s frightening to face foreclosure, but the last thing you should do is avoid contacting your lender. Mortgage lenders have knowledgeable and reputable staff who specialize in helping customers with their loan questions. Many big lenders also have information available about programs you can use to help you with your specific loan concerns. By being prepared, being honest, and asking for help, you can work with your loan servicer to bring your loan current and prevent foreclosure.