For many people who want to keep their housing, foreclosure is a process that they fear. Foreclosure happens when a lender tries to seize the amount that the borrower owes them in a loan. Lenders do this by getting the ownership of a mortgaged house or property and then selling it. The mortgaged property is known as “collateral,” functioning as a kind of leverage if the borrower cannot uphold the terms of a loan agreement. The process begins when a borrower is unable to pay the recurring amount in their loan.
The first missed payment usually yields a notice, while the second means a letter gets sent to the borrower. Both serve as warnings. After ninety days or three missed payments, the lender starts to contact their foreclosure department. The borrower then has another three months to settle outstanding charges and resume the terms of the loan. Failure to do this means the foreclosure process will continue.
To avoid foreclosure, here are four general tips that can help.
MAKE SURE YOU HAVE COPIES OF ALL YOUR LOAN DOCUMENTS ORGANIZED IN A CASE FILE
In case you end up missing a payment for your mortgage, you must have a copy of all the documents you need. Please keep them in one place for convenience and faster access. There are many cases in which borrowers fail to reinstate their loans due to losing essential documents. Borrowers can easily avoid instances like this if they have spares of your mortgage, promissory letters, and trust deeds.
Other important documents include monthly proof of billing, the records of your property taxes, insurance, and all letters from your lender and service provider. Avoid throwing away any papers relating to your loan and mortgage.
STICK TO A BUDGET
The main issue with foreclosures is always money. At this point, you must have a good idea of how to manage your monthly expenses. It is not a good idea to spend money on unnecessary items or costs until you are at a secured place with your mortgage. You can cut back on memberships, excess food items, and other similar expenses. It also helps to negotiate lower monthly payments, although this might increase the duration of the deal.
KEEP YOUR EYES PEELED FOR ALTERNATIVE OPTIONS
Many borrowers feel boxed in the existing terms and conditions of their deals. However, there are ways to modify them into alternatives that can better suit their financial requirements. One of these is to directly change certain aspects of the deal, such as paying it off or the interest rate.
Another alternative is a “forbearance agreement.” In these types of agreements, the lender can permit the borrower not to pay for a particular time. When the period is up, the borrower may pay the missed amount in bulk or another setup. Contacting your service provider may help, as they can assist you in the process.
GET THE LOAN AMOUNT YOU CAN AFFORD TO PAY
When choosing a home or buying a property, it’s important to be reminded of your financial capability. Many homeowners are victimized by buying properties they can’t afford and borrowing an amount that’s beyond their financial means to pay. To value the property you are going to buy and avoid getting it foreclosed, loaning only the mortgage amount you can afford to pay is one of the best strategies. Assess your income. Calculate the total expenses you in each month. If you think your savings are enough to pay a mortgage, then that’s the only time you should consider buying a property.
SAVE UP FOR YOUR AMORTIZATION IN ADVANCE
Another effective strategy is saving up for your advanced payments. Although you are given a due date to make your payments, it’s better to be a prompt buyer. You don’t need to wait until your due date to save the payment for your mortgage. More often than not, emergencies arise when you are about to pay something big. What if the only budget you have is the payment for your mortgage? Since it’s an emergency situation, you will be compelled to use the money and delay your payment. If you default, you are going to pay for additional charges like interest and penalties, which can badly hurt your ability to pay. If you have funds in advance for your mortgage, you can be ready for any emergencies to come.
DON’T USE YOUR HOME AS COLLATERAL.
If you are going to borrow money, avoid using your home as collateral as this is one of the main reasons why properties get foreclosed. If you will get a loan, you have to ensure that it’s something you can pay without pledging your equity or surrendering the title of your home as a security to the loan. If you have other assets to pledged and you are prepared to lose them rather than your house, then put them first as the collateral. Besides, you need to prevent yourself from getting more loans since you already have a mortgage you are currently paying.
WHEN ALL IS DIFFICULT, CONSIDER SELLING THE HOUSE.
Sadly, there are cases where your finances can no longer take the burden of the mortgage. The good news is that you can work out a deal that softens the blow and avoids the process of foreclosure. For example, having equity means that you can use funds from it to pay off the loan. Some lenders permit a short sale, wherein the former resident sells the house but at a lesser value than the money owed. Alternatively, borrowers can avoid voluntarily handing over the property to the lender. There are a lot of options to explore once you decide to sell your home. A lot of professionals and companies offer to buy houses and properties at a reasonable price that you can accept in order to save yourself from the trouble of foreclosure.
If you are about to buy a house or you are in the middle of financial issues right now, the strategies above can surely help you avoid foreclosure.