In recent years, the number of foreclosure filings has neared 500,000 annually.
This number, while potentially frightening for homeowners, actually represents a decline in the annual foreclosure rate. However, a current moratorium on foreclosures is set to expire soon. As a result, experts expect a devasting surge in foreclosures over the next year.
Will you be able to save your house from this surge? With the right information and the right precautions, you may be able to do just that. Read on for expert tips on how to avoid foreclosure.
What Is Foreclosure?
Foreclosure is a legal process protecting lenders via secured loans.
When entering a secured loan, like a home mortgage, a borrower guarantees repayment by offering collateral. In the case of a mortgage, the home itself is the collateral. This means that the lender has the right to repossess the property if the borrower cannot keep up with the mortgage payments.
As a borrower, you agreed to these terms by signing the closing documents.
What Circumstances Cause Foreclosure?
When you signed the closing documents, you were likely confident in your ability to make the mortgage payments. Your lender likely was too, or it wouldn’t have offered you a loan.
In reality, though, life is unpredictable. Common circumstances that can result in home foreclosure include:
- Quitting or being fired or laid off from your job
- Experiencing a medical emergency or death in the family
- Suffering damage from a natural disaster
- Taking on excessive debt to account for a significant, unexpected expense or a general increase in living expenses
- Getting divorced
- Moving before selling your old home
- Facing increased mortgage payments
How to Avoid Foreclosure
Many of the circumstances that lead to foreclosure, like job changes or sudden illnesses, are unexpected. As such, they’re difficult to plan for and even more difficult—if not impossible—to prevent.
However, you can take steps to protect yourself from at least some of the above causes. These early precautions are important ways to avoid foreclosure.
Early Precautions Against Foreclosure
Ideally, you’ll make wise decisions as you sell your home and purchase a new one. These wise decisions can significantly reduce the likelihood that a lender will foreclose on your home.
First, in most cases, it’s best to avoid purchasing a new home before selling your current home. Relocating before you sell your old home could leave you responsible for two mortgage payments at once.
If you must move quickly, you do have options. In fact, you can get an offer today from a cash buyer.
When you are ready to purchase a home, carefully read the terms of your loan. Understanding these terms before you sign the closing documents can protect you from unpleasant surprises, including increased payments.
Finally, work with reputable lenders. Reputable lenders verify your income and check your credit history. They also ensure that you have a viable debt-to-income ratio. In other words, they’ll make sure that the loan you sign is one you can pay back.
Emergency Measures to Avoid Foreclosure
Perhaps you’ve taken the above steps. Through unfortunate circumstances, however, you still find yourself on shaky financial footing. As frightening as your situation seems, you’re not without recourse. In fact, the following tips can help.
Don’t Ignore the Warning Signs
A lender isn’t going to foreclose on your home if you miss one or even a few payments. However, these early missed payments are crucial warning signs.
Unfortunately, many people try to ignore these warning signs. They’re too embarrassed to seek help, or they think they can manage on their own.
In most cases, though, ignoring the problem only allows it to snowball. It also prevents you from taking advantage of the help that is available.
Foreclosure prevention measures are often much more effective and much easier the sooner you attempt them. So the most important emergency tip to avoid foreclosure is to seek help at the first sign of trouble.
This means contacting your lender to find out what options you have. It also means opening and responding to all correspondence the lender sends. Early notices will include important information about foreclosure prevention options.
Know Your Loan Options
Foreclosure prevention options can involve working with a lender to:
- Seek a mortgage modification to restructure your loan terms
- Refinance the terms of your loan, which can involve more extensive changes than a mortgage modification
- Develop a repayment plan
- Establish forbearance, or a temporary suspension or reduction in your mortgage payments
- Sell your home for less than the value of the mortgage in what’s called a short sale
As a last resort, you may also be able to offer the lender a deed-in-lieu of foreclosure.
Like foreclosure, this option transfers ownership of your property to the lender. Foreclosure negatively impacts your credit history.
Work with a Housing Counselor
When facing foreclosure, it’s essential to maintain open communication with your lender. However, you don’t have to deal with them alone.
A housing counselor can help you understand the terms of your mortgage and your rights and options as a borrower. They can ensure further that your rights are adequately represented in negotiations with your lender.
Plus, they can help you organize your own finances and establish a stronger financial footing overall.
Your local HUD office can recommend a reputable counseling agency. They can also help you navigate the specific foreclosure laws in your state. This expertise is especially valuable since different states have different laws and timeframes for the process.
Maximize Your Finances and Assets
One of the advantages of working with a housing counselor is the opportunity to organize your finances. Organizing your finances, in turn, means maximizing them.
Whether with a counselor or on your own, take an honest look at your spending. See if you can identify optional expenses that you can cut, at least temporarily. These might include cable TV or other forms of recreation. At the same time, avoid sacrificing essentials, like food and health care.
Also, look for valuable assets that you would be willing and able to sell. Again, it’s important to approach these decisions with a level head and professional guidance. As with spending cuts, you should never sell essential assets, such as a car you need to commute to work.
Stay Safe at Home with These Home-Run Foreclosure Prevention Strategies
Now that you know how to avoid foreclosure, you and your family can continue enjoying the safety of home.
You can also continue hitting home runs with our high-quality content. Check out the rest of our blog today!