Everything You Need to Know About Foreclosure
Everything You Need to Know About Foreclosure
Foreclosure. It’s a scary word that strikes fear and anxiety in the minds of many homeowners every year. Buying a home is the most significant investment most people make in their lives. But more than that, it’s where you live. It’s not just a house. It’s your home. And if you’re facing the possibility of foreclosure, you could be feeling helpless.
As stressful as it is, though, it’s a problem that needs to be faced head-on because there are solutions out there. Waiting to deal with it could potentially leave you in a position where you’ve run out of time.
We’ve put together a series that covers everything you need to know about foreclosure to give you the facts, help you understand what is happening, and to empower you to move forward.
Click any heading in this menu to skip directly to that section:
- How to avoid foreclosure
- Handling missed mortgage payments
- What really happens when you default on your mortgage
- The truth about loan modifications
- What to do with an underwater mortgage
- Differences between short sale and foreclosure
- Buying a home after foreclosure
- Contact Real Estate by Design Idaho today
How to avoid foreclosure
To begin with, you’ll need to assess your situation for reasons that you find yourself threatened with foreclosure. Once you’ve gathered the information, you should start to look at ways that you can potentially climb out from underneath it.
If you’re looking to avoid foreclosure, but want to keep your home, you might want to consider speaking to your lender to come up with a solution. It’s in their best interest to help you be successful in home ownership. Other options are reinstatement, loan modifications, refinancing, or perhaps renting out your home so that you can keep making your payments.
If you’re in a position where you know you won’t be able to keep your home, consider getting in touch with a realtor to discuss a short sale.
The last and most important thing is to exhaust every option, and not give up before you have to. Foreclosure and bankruptcy should be your very last option.
Handling missed mortgage payments
Short-term financial hardships may bring you to a point where you will not be able to make your mortgage payments. As a homeowner, you should usually have a good idea if this will or will not happen. Being able to anticipate that a hardship is coming soon will put you in a much better place to get ahead of it.
The best decision to make is to immediately take steps to rectify the issue by looking at your options and being proactive. The result of continued missed payments will be that you will incur additional late fees, and potentially legal fees as well, all on top of your mortgage payment. Ultimately, all of these extra fees make it harder to catch up. After three missed payments, you also risk your bank filing a notice of default.
If you’re not late on your payment yet and you have extra cash, prepare for the future by putting money away in an emergency fund. These funds ideally have a few months worth of money to pay your house payments and other bills. Another option is to sell the home before you’re too strapped.
Check out this article for tips on how to handle missed payments, what you can do to get ahead of the problem, and other ways you may be able to negotiate with your lender to avoid a mortgage default.
Missed mortgage payments incur extra fees and put you at the risk of penalties. So, try to look at your options to prevent further missed payments.
We know, however, that sometimes making the payments just isn’t in the cards, and if this happens your bank may decide to issue a notice of default. The best advice here is to be prepared, know your rights, and know how to handle it.
For example, there are time frames a lender will need to adhere to after they file a notice of default which gives you time to get your ducks in a row, and in some states, a judge is required to review the proceedings. Essentially, during this time, you have the right to seek help and try to get back on track.
Defaulting on a mortgage is not uncommon, and the good news is that it does not always lead to foreclosure. The reason that it doesn’t always lead to foreclosure is that there are ways to get yourself out of the situation such as hiring a certified default specialist that can help you negotiate with your lender, or working with a realtor on a short sale.
Default, although fixable, should be taken very seriously because it’s the beginning of the foreclosure process, and it requires lawyers to draw up documents which means big fees. If you see default coming, start putting together your action plan right away.
Read more about what exactly the default process entails and how it works, as well as some practical solutions.
The truth about loan modifications
Catching up on your mortgage payments is the simplest way to avoid finding yourself in default. Banks want you to be able to succeed in home ownership because when you win, they also win. Lenders are open to working with homeowners that find themselves in temporary financial hardships.
A loan modification is one way to work amicably with your bank in a way that benefits both of you. Asking your lender for a loan modification can help reduce your monthly payments to help you to catch up on your payments and enable you to come up for air. When considering a loan modification, though, you need to evaluate where you’re at and if you’ll be able to make payments, even if they are lower. A situation some homeowners find themselves in is that there is a high rate of re-default.
Click here to get more information about loan modifications, including the pros and cons so you can determine if it’s the right choice for you.
What to do with an underwater mortgage
Depending on when you bought your home, you may be seeing a considerable increase in value or a significant decrease. Markets are continually going up and down. In 2008, Americans experienced the biggest crash in our history, leaving many homeowners in a position where they owe more on the home than what it’s worth, or the fair market value. This is referred to as an underwater mortgage or upside-down on your mortgage. Are you unsure whether or not you have equity in your home? You can check what your home is worth here.
So, what do you do when you have an underwater mortgage? The options are similar to dealing with default and might include things like working with your lender to refinance your loan, perhaps get a loan modification, or negotiating a short sale.
If you’re able to continue the make the payments, you can choose to ride it out so to speak and stay in your home until the value increases. Having an underwater mortgage doesn’t automatically mean that you’ll be facing foreclosure.
If you’re upside-down in your mortgage, click here to read more about what it really means, the consequences, and what your options might be.
The difference between short sale and foreclosure
If you find yourself in a position where you’re facing foreclosure, you may be under the impression that it’s unavoidable and inevitable. The truth is that there are options you might be able to pursue.
Short sales, can help you avoid adverse effects on your credit score and even your ability to purchase a home in the future. In this scenario, you would get approval from a bank to sell your home for less than what you owe.
Lenders are amenable to this in some cases as it will save them the trouble of issuing a notice of default, foreclosing on your home, and then having to do the work of selling it to recoup their loss. You will do this for them. Working with a realtor who specializes in short sales is crucial, so be sure to look around for somebody that has a lot of experience.
Unlike short sales, foreclosures are legal processes that can be very expensive for your lender, and they will ultimately pass those fees along to you. Additionally, foreclosures will have a substantial negative impact on your credit which will have a much more significant and negative impact on your credit score.
Unfortunately, in both of these cases, you will have to part with your home. But, with a short sale, you’ll be able to do it more on your terms, and will enable you to purchase a new home after a shorter period.
Short sales can be complex, so we have outlined the specifics here. You can read more on the differences of foreclosures vs. short sales, find out who can help you through the process, and get the steps you’ll need to take to get started.
Buying a home after foreclosure
Foreclosures are bad for your credit, and in the eyes of banks and other lenders, it makes you a risky candidate for a new mortgage. If you went through foreclosure within the last seven years, chances are you won’t be able to get a loan. But, over time, you will have the ability to reestablish your credit, and eventually, you will be able to buy a house assuming you have the financials to get approved.
In the meantime, being proactive can help you prepare for when it’s time to buy another home. Speak to a mortgage counselor to get advice and find out which types of loans will be your best chance to get another loan. Certain types of loans might be more appropriate after foreclosure than others and might even have shorter required time periods between foreclosure and buying a new home than others.
As with your first home, evaluate your financial ability, and work on improving your credit score. Credit Counseling can help you to identify ways to raise your score and find other programs that might also help alleviate some of the debt you have incurred.
If you’re ready to buy again, find a realtor that can help you streamline the process and refer you to mortgage brokers or agents that can help you. Experienced realtors will hold your hand through the process and alleviate some of the stress you have been experiencing.
This article will give you the information you’ll need about buying a home after foreclosure.
Contact Real Estate by Design Idaho today
Realtors are usually not the first people you think about when you’re facing foreclosure or have gone through foreclosure, but they work closely with people in finance like mortgage brokers, and they can help direct you. Realtors also deal with short sales, both buying and selling, and they will be able to help you arrange and expedite it quickly.
When choosing a realtor or real estate company, some go above and beyond. Real Estate by Design Idaho has certified default specialists on staff that may be able to help you before you’ve reached the foreclosure stage by helping you negotiate with lenders or negotiating on your behalf. Combine this with the fact that they are experts in short sales, and you’ve got an all-service agency, and an excellent choice for any homeowner.
Many homeowners in America find themselves in default or foreclosure, so remember that you’re not alone. Start by taking a deep breath, and then get in touch with the right people who will be by your side through the entire process. There are so many details that one needs to know when going through the foreclosure process that your head might be spinning. An excellent way to deal with it all is by taking it one step at a time. Just make sure you’re moving forward and getting ahead of the situation.
Lastly, don’t give up. Exhaust all of your options before succumbing to foreclosure or bankruptcy. There are experts out there ready to help you through.