Most advice given by those who write about avoiding foreclosure says that you should find out the lender's position and policies as soon as you know that you are going to have a problem making your required payment. This is not necessarily true.
While lenders' policies may change as the economy changes, the law regarding your mortgage will most likely remain the same. When you apply for your loan, ask what the foreclosure procedure is for the loan, specifically how long it takes from the time you miss your payment until you have to move. Also find out if you can be held personally liable for any deficiency if the house does not sell for enough to pay off the mortgage. You may feel uncomfortable asking these questions when applying for a loan, but you should not. If the person you are dealing with asks why you want to know, say that while you plan to make the payments, you like to be thorough and cover the negatives as well as the positives.
When you ask about the lender's policy regarding foreclosure, you are not asking a general question. There are specific ways to avoid foreclosure. There are several reasons why a borrower may have problems making the mortgage payment. Some are temporary, such as a job loss or a temporary health problem requiring time off from work that could last for a few months. A salesperson working on commission could have this problem. The word temporary in the mortgage industry usually means no more than six months. The other situation is the permanent inability to make the payments. This could be a job loss followed by a new job that pays much less, a severe health problem restricting the borrower's ability to work, or a divorce.
If the situation is temporary, the solution is usually some type of forbearance by the lender. This could be requiring no payments or reduced payments for a few months. This would be coupled with a repayment plan. Once the borrower is again able to pay, the repayment plan would require higher payments to make up the delinquency. If you have a government loan, such as an FHA loan, check with that agency's approved counselor. You may be eligible for a no-interest loan from the agency to bring you current. Whenever approved counseling is available, use it. There may be local programs to help you of which you are not aware.
To find an approved counselor, go to the FHA website. The FHA will supply you with a list of counselors in your area and information on how to contact each. As you will see from reading this article, there are several possible options. By giving a counselor a detailed explanation of your circumstances, you have a better chance of choosing the best solution. Another option is refinancing. This works if you have substantial equity in your home.
Example: Say your current mortgage was originally US Dollars 200,000. You have paid for many years and the loan balance is now US Dollars 100,000. Your monthly payment is still based on US Dollars 200,000. You could refinance the US Dollars 100,000 balance, including any delinquency, and have a much lower monthly payment.
Before seeking another lender, talk to your present lender about a loan modification. A loan modification is changing your loan rather than paying off your existing loan and getting a new one. Depending on market conditions and your ability to pay in the future, the lender may reduce your interest rate, lengthen the term, or make some other change or combination of changes to reduce your payment.
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