Many people in the United States work hard to achieve what is known as “the great American dream,” which is to buy their own home. There’s no denying the numerous advantages of homeownership, but significant obligations also come with it. A down payment of roughly 20% of the home’s sales price was formerly standard, but in today’s market, it may take little or no money to become a homeowner. First-time buyers typically qualify for a lower interest rate on their mortgage because they are borrowers at the bottom of the market or because they have not saved up enough money for a large down payment.
A borrower with a larger down payment will have an advantage when applying for a loan from a financial institution. A cash down payment of 10%-20% of the buying price is customarily expected. Because the loan is typically insured or guaranteed against loss of principle by a government or quasi-government entity, banks, and mortgage lenders almost always approve particular loans with very little or no down payments for prospective homeowners.
During economic downturns, first-time homeowner loans are frequently the first to default. The long-sought American Dream can become a nightmare if one is forced to struggle financially due to circumstances beyond their control, such as the loss of a job, an injury or illness, a chronic condition, or issues in a personal relationship. Even though few people lose their homes in a healthy economy, those going through the foreclosure process often experience such emotional and financial turmoil that they cannot see a way out of their situation.
The following is provided to point individuals caught up in this mess in the right direction and offer them the tools they need to get their financial lives back on track. While foreclosure procedures vary slightly from state to state, common principles apply nationally.
To avoid having one’s property foreclosed upon, one must first and foremost “communicate, communicate, communicate” with the lender. You should contact your lender immediately and fill them in on the current circumstances. This is the first of several steps that are outlined below.
If the borrower tries to explain the financial difficulties that led to the default, the lender will always do what they can to accommodate the borrower. Make an effort to negotiate a reduction in your monthly payments with your lender to catch up on any fees you may have missed. If you want to stop the foreclosure sale of your property, you need to move immediately since once the process has begun, you only have 120 to 140 days to do so. Get in touch with your mortgage company and explain the situation. Maybe you can work something out so you can keep your home. Before the trustee files the notice of default, you have the most fantastic time negotiating a solution and the best chance of success. During the 90 days before the posting and filing the notice of trustee sale, you must contact the lender if foreclosure proceedings have already begun.
Many homeowners in the foreclosure process fail to engage with their lenders because they are too outraged or ashamed to do so. It’s common for homeowners to misunderstand their lender and conclude that they won’t get any assistance since the lender would rather foreclose. The inverse is true, however. Lenders like banks and credit unions make the bulk of their money from the interest paid on loans. They have a system to invest money and collect the claim, which is how they make money. Foreclosure is a complex process for them, and they aren’t prepared to deal with the properties left behind.
For this reason, most lenders are amenable to working with homeowners rather than foreclosing on them. They have no choice but to spend time and energy on something that doesn’t bring in any money. Make quick contact with your lender. Do not disregard your lender’s attempts to contact you by phone or mail. If you don’t communicate with your lender, they’ll believe you don’t intend to pay and will move on with legal action regardless.
You should put in a lot of work before approaching a lender. You must compile receipts, bank statements, and loan documentation to prove your income and expenses. Ask to speak to a customer care representative when you call. Tell the truth about your situation and be ready to discuss your finances. If you want your lender to be able to help you, they need to have a comprehensive picture of your financial status.
Modifying a loan means negotiating new conditions with the lender. Lender concessions could include, for instance, a reduction in the loan’s interest rate or an extension of the loan’s repayment schedule. With this plan, you may get back on track with your financial obligations by making manageable monthly payments. If you have overcome financial hardship and can now afford your loan payments without modification, you may want to consider applying for one.
You can get back on track with your repayments by including a percentage of your past-due payments in your regular monthly installments under a repayment plan. If you’ve recently gotten back financially but still need more time to pay any past-due bills, a repayment plan may be right for you.
If you have fallen behind on your payments but have the means to catch up by a specified date, you may be eligible for reinstatement. If you know or can demonstrate to your lender that you will soon receive enough money to bring your loan account current, reinstatement may be acceptable.
Lender forbearance occurs when both parties agree on a temporary reduction or suspension of loan payments. This choice halts the foreclosure procedure when used in conjunction with other remedies, such as reinstatement.
Talk to a trusted counseling service for foreclosure help if you don’t feel confident negotiating with your lender or want more information about your alternatives. Choose a housing counseling service from the list maintained by the U.S. Department of Housing and Urban Development. Be wary of so-called “counseling agencies” that claim they can help you, but only if you pay them a hefty sum of money for services that you might be able to complete on your own.
When presented with this choice, many individuals automatically reject it. Assuming this choice would be the first one tried, it seems reasonable. Because of shame, many people never even consider this option for getting the money they need to bring their debt up to date. They look elsewhere because they do not want their loved ones to realize they have money problems. In many cases, those closest to you are most willing to provide a hand. They will gladly lend a hand if they can, so don’t hesitate to ask! Most homeowners are too ashamed to ask for aid until it is too late when it is already too late because of the foreclosure process. There are scenarios where the homeowner does not approach their friends or family due to preexisting tensions or a desire to spare their inner circle any unnecessary distress.
My best advice is to treat the request for help as seriously as any other business matter. As if you were the one offering the money to someone in need, you owe it to them to take precautions to protect their investment. Your chances of successfully getting the funds necessary to avoid foreclosure increase proportionally to the assurance you can offer them in safeguarding their funds.
A third alternative is to take out a loan from a financial institution to catch up on past-due payments. This can be accomplished by taking out a second mortgage or refinancing the first. When deciding whether or not to grant a loan, these creditors will look heavily at the property’s equity. “equity” refers to the monetary surplus over the home’s mortgage balance. To refinance is to obtain a new loan for the express purpose of paying off an existing mortgage. You can make your mortgage payments more manageable by refinancing to avoid foreclosure and potentially getting a cheaper interest rate, a more extended payment period, or both. You need to take swift action before your credit reflects any late payments if you expect to borrow from an institutional lender after falling behind on your mortgage payments. Lenders who find out that a borrower is in default are significantly more likely to reject their loan application altogether or to present a loan with extremely high-interest rates to compensate for the risk associated with lending to a defaulting borrower.
Some people in the world are financially secure but want a better return on their money than they can get by keeping it in a bank. Individuals that fund what is commonly known as a “hard-money” loan do so because they anticipate a high rate of return on their capital investment. When a homeowner falls behind on their mortgage payments, it can be tough to get a loan in the future. Private lenders typically base their loan decisions in part on the borrower’s equity in the property. Due to the borrower’s past due balances, the borrower’s ability to repay on time is no longer the primary reason for qualification. The market value of the property and the amount still owed by the borrower provide the lender with the security they need to invest. These loans almost always come with a substantially higher interest rate (often starting at around 14 percent) than conventional house loans available from banks and other lending institutions. However, they are frequently a foreclosed-upon homeowner’s last hope.
If a homeowner is behind on their mortgage payments, selling the house and pocketing the wholesale price (less any charges) is often the best option. Unfortunately, many homeowners let their feelings about the difficulty cloud their judgment about the actual state of their finances. They stumble around as if wearing blinders, holding out hope for a miracle fix, often delaying the development of a sensible strategy until it is too late. A homeowner who looks honestly at their finances and concludes that they can’t afford to keep the house would be better off selling it and keeping the money in the bank until they can afford a new home.
However, they must take swift action to avoid ruining their credit by missing mortgage payments or filing for bankruptcy to delay the home’s sale. Avoid the exorbitant fees associated with helping those in financial straits, which could eat away at your equity. You should sell the house and keep the equity as the main or most valuable asset.
Chapter 13 and Chapter 7 are the two personal bankruptcy chapters. Chapter 13 is designed to assist individual debtors in repaying their debt under court supervision and protection, whereas Chapter 7 entirely wipes out, or “liquidates,” the debt. Simply relying on this definition, you might conclude that declaring bankruptcy is the easiest and best option for solving your financial woes. You should know that declaring bankruptcy is a complex legal process with severe economic repercussions if you’re considering doing so. Generally speaking, it’s not the ideal choice for debtors and shouldn’t be explored until all other avenues have been exhausted. You should consult with a financial planner or accountant and a bankruptcy attorney to explore your unique financial situation and the potential outcomes of filing for bankruptcy. I suggest consulting with multiple lawyers if you do not already work with one.
Many of us will undoubtedly experience misfortune at some point in our lives. You can safeguard your financial stability by taking preventative measures when these issues arise, so keep that in mind. You can probably avoid foreclosure if you move fast and take precautions to protect your property. If you cannot stop the foreclosure process, following these steps will make it easier. If you’re dealing with taxation, legal, or real estate issues, getting expert help as soon as possible will significantly boost your chances of a successful resolution.
For over 25 years, Nef Cortez has worked as a real estate broker and in related roles in the mortgage and housing finance sectors. Visit Chino Hills CA Real Estate [http://www.nefcortez.com] to read more of Nef’s insightful and relevant advice (including the most recent information on local foreclosures), or check out his blog, A Slice of So Cal Real Estate.
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