Many homeowners believe that refinancing is a good solution when they are trying to stop foreclosure. This is generally a smart idea, if there is equity in your home and if you get a new loan before your credit is ruined from the defaulted mortgage. One main problem is that many borrowers do not land into this category. Most foreclosure victims have extremely poor credit and little equity. This results in the majority of debtors facing the loss of a home and wasting important alternative opportunities trying to apply for a foreclosure loan.
A better solution is a mortgage modification with your current lender. This is when the terms of your existing mortgage are modified to produce a lower monthly payment. In reality, it is just like a refinance, but your credit and equity are not a large determining factor, like a refinance. In most cases, the interest rate is decreased and the term of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even decreased to reach the target payment.
In some cases, simply asking your financial institution for a loan modification will work. But more often than not, you will need to hire a professional mediator to work on your behalf. When you hire a professional, make sure you do not pay cash up front, or if you do, it is placed into an escrow account until the case is complete. If you do not get results, you should not have to pay for their services! Do your homework and be careful not to get taken advantage of. New laws are in place to protect homeowners, but criminals will always be ready to steal your money if you allow them.
When negotiating with your financial institution, you will have to complete a loss mitigation package when requesting your mortgage modification. This will help them figure out your ability to pay the loan. This is where a professional will come in handy, since getting rejected can be final. It is important to submit a package that is complete and can be approved the first time around. You may be asked to provide proof of income, as you did when you applied for the original loan. Whether or not things have changed with your income is one of the things that the financial institutions will look at.
If the value of your home has decreased and you are “underwater” in your mortgage, then you need to decide if keeping your house is even the best decision. As I said earlier, you may qualify for a mortgage modification with a principal reduction, but selling the house may be your best option. When you are underwater in your mortgage, a short sale can be an easy way out. A short sale is when the house is sold for less than the payoff amount and the bank forgives the remaining portion.
Short sales can be tricky however, because your lender will not easily agree to this solution and may pursue a deficiency judgment after the home is sold. It is very important to get your agreement in writing and to make sure they waive their right to pursue this deficiency judgment at a later day. We never recommend owners attempting a short sale on their own. Professional short sale negotiators or real estate agents specializing in this type of sale are available at little or no charge to the homeowner, so take advantage and make sure your rights are protected.
Regardless of what you decide, it is important to know that you have options and allowing the house to go to foreclosure is never the best idea. Your credit will be damaged for years to come and purchasing a new home will be virtually impossible unless you have recovered. Do not be afraid to request help or hire a professional to help you through these rough times.
Author-Bio: Nick publishes articles on the ForeclosureFish website to provide foreclosure help and advice to borrowers in need of assistance. The site examines various methods to save a home, including deed in lieu, filing bankruptcy, short sales, defending foreclosure in court, and more.
