Achieving your dream home—or any home—does not guarantee it will be protected from foreclosure. You could face a crisis that puts your home at risk of foreclosure, especially if you have a large mortgage payment on your dream home. If your property is in danger of going into foreclosure, the issue needs to be handled right away, and it could be avoided with the right loss mitigation solutions.
Before we delve into steps you can take to avoid foreclosure, let’s first understand what this term entails.
What is foreclosure?
When borrowers stop paying their mortgage loans, banks, and mortgage lenders will have to recover their losses. They can achieve this through foreclosure. When a borrower takes out a mortgage to buy a house, they commit to paying their lender monthly payments until the house is repaid. The lender will try to recover some or all of what is still owed by seizing control of the house and selling it if a borrower can no longer make loan payments, mostly due to financial difficulties such as job loss.
The homeowner gets removed from the home when it is foreclosed upon, and the foreclosure is noted on their credit report, which hurts their credit score.
Ways to protect your home from foreclosure
1. Talk to your lender about it
If you recently overcame a temporary setback that kept you from paying your mortgage payments for a while and can now do so each month but cannot repay the missed payments in full, this is a viable alternative.
If you don’t have any trouble making payments in the future, your lender could agree to work out a repayment schedule to get your past-due loan back on track. As part of this repayment plan, the lender will add portions of the amount you owe for late payments to your normal monthly installments, enabling you to settle the debt over a predetermined period.
When negotiating a new payment schedule with your lender, be completely honest about how much you can afford to pay each month. Avoid agreeing to pay more than you can comfortably afford. Ask about more alternatives for mortgage relief. Your lender might provide options depending on the circumstances.
2. Request a Forbearance
Mortgage forbearance is one of the best loss mitigation solutions. It enables borrowers to suspend monthly mortgage payments for a specified time if they have financial difficulties.
The loan servicer anticipates that you will use the forbearance period to get back on your feet and get ready to resume making your normal monthly payments after the predetermined period, in addition to paying back any accrued debt during the forbearance period.
The main point to remember about forbearance is that you’ll be responsible for paying the amount suspended at the end of the grace period. Therefore, if you were in forbearance for five months, you must make up the five months’ worth of missed mortgage payments. Usually, you can do this as a one-time payment or as part of a payback schedule.
3. Request for a loan modification
As you might have guessed, a loan modification adjusts your existing loan’s terms. If you aren’t qualified for a refinance, a loan modification may be able to help you keep up with your payments and keep living in your house by lowering your monthly payments. Extending the loan term to give you more time to pay it off and lower your monthly payments is a popular kind of loan modification. This might or might not be done in addition to reducing your charge.
4. Conduct a short sale
If there are no alternatives for payment plans that would let you keep your property, your only remaining options to prevent foreclosure will necessitate moving out. One of these choices is something called a short sale.
In a short sale, the lender accepts the sale of your home for less than the balance owed on the loan, keeps the sale profits, and then discharges any outstanding debt. You might be able to retain some of your equity through a short sale, but the lender must first authorize it. You might be able to find a buyer and be guided through the protracted process of acquiring the required approvals with the assistance of a real estate agent with experience in short sales.