Foreclosure is Not Your Only Option
Foreclosure is Not Your Only Option
Foreclosure is Not Your Only Option
The Mortgage Bankers Association reports that one out of every 200 homes will be foreclosed upon. For a city like Washington D.C., that translates to 3,000 Washingtonians losing their homes to foreclosure each year.
Foreclosure is not your only option. Since the U.S. mortgage mess unraveled, the government and lending institutions developed some ways to help banks recoup part of their loss and homeowners to preserve their future chances of owning again.
First, you should know the basic ramifications of a foreclosure from your perspective.
Foreclosure damages your credit rating for up to seven years;
Foreclosure means you lose any equity you've built up in your home to date;
Foreclosure means you pay a higher interest rate if a bank ever agrees to finance a future mortgage;
Foreclosure could affect future job offers in a negative way;
Foreclosure can affect other credit accounts like credit cards. Most consumer credit cards have a universal default (failure to pay other credit accounts) which authorizes the company to increase your rates;
Foreclosure (and short sale) may mean you must pay taxes (the difference between the purchase price of your home and the amount you owe on it at the time of the short sale or foreclosure);
Foreclosure in Virginia might result in a deficiency judgment if the property is sold for less than the loan amount. This means the borrower owes the lender the difference between what the property sold for and the original loan balance.
What are some options to avoid foreclosure?
First and most importantly, do not wait until you can no longer make a payment to touch base with your lender. Talk to your bank before trouble brews to see whether they offer some options for making adjusted payments. It is in the bank's best interest for you to stay in your home and pay off your mortgage so in most instances they will work with you.
Try not to miss a payment. Make a partial payment if that is all you can do. Again, talk to your lender and explain the circumstances. If you miss a payment, call the lender and request a repayment plan that distributes your delinquent payment(s) over a series of several months.
The bank might agree to a loan modification. This option adds any past-due interest and escrow amounts to the unpaid principal balance. This new amount is reamortized over a new term.
If your mortgage is an FHA, you can attempt to secure an interest-free loan called a partial claim from the Department of Housing and Urban Development (HUD) to repay the past-due interest and escrow amounts of your home mortgage.
Sell your home on your own or with the help of a real estate company. A successful home sale covers the balance of your mortgage, retains your equity, and perhaps even gives you some money to apply toward a future home. If making your next mortgage payment is an imminent concern, you can work with a home buying company that specializes in quick turnaround.
If none of these steps allow you to stay in your home, your bank may agree to a short sale. Essentially a short sale means you sell your home for less than the amount you owe the bank. The bank agrees to accept that payment and forgive the remaining loan balance. There are still some long-term credit score consequences for you, the homeowner; however, they tend to be less severe than the consequences of a foreclosure.
Another option is called a deed in lieu of foreclosure, which allows you to transfer your property voluntarily to your lender. Again, there are credit score consequences, but they are less severe than those resulting from foreclosure.
The federal government offers assistance in the form of the HOPE for Homeowners program. It is intended for borrowers at risk of default and foreclosure. It is a new 30-year fixed rate mortgage insured by the Federal Housing Administration. It is voluntary and both the lender and borrower must both agree to participate.
The Homeownership Preservation Foundation (995hope.org) is a national Dept. of Housing and Urban Development (HUD)-approved nonprofit housing counseling agency. The Foundation provides free telephone counseling through their HOPE Hotline at 888.955.HOPE. If you own a home in Maryland, you can call the Maryland HOPE Hotline at 1-877-462-7555 or visit their Web site at www.mdhope.org. It lists a number of resources available to Maryland homeowners and renters.
Every three months 250,000 new families enter into foreclosure (Mortgage Bankers Association). Take steps now to keep your family out of that staggering statistic!
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