The thought of losing your house and falling into debt is terrifying for any homeowner. You may believe it will never happen to you, but in 2009, foreclosure notices reached a record high of 2.8 million. Fortunately, about two-thirds of notices don't result in foreclosures, according to nonprofit foreclosure counseling group, Neighbor Works.
If you are currently facing a foreclosure on your home, read on to learn more about your options and how to avoid losing your house.
Understand the process
A foreclosure take anywhere from two months to a year to finalize depending on your lender and location. Once you miss one mortgage payment, research the foreclosure laws in your state so you are aware of what happens next and when it will happen. The steps that lead to your foreclosure include letters, notice of default, publication of debt, and a scheduled foreclosure auction.
Read the fine print on your mortgage documents to find out more about what your lender is authorized to do and what your rights are. Look for mention of your "right to redemption"--a grace period where you are legally able to reverse your foreclosure. If your home is sold at auction, you could also be held responsible for the difference between what it sold for and what you owed. Once you have a thorough understanding of the entire process, it will be easier to determine your options and strategy.
Consider all options
There are many resources and alternative methods to help you get through this stressful experience. You do not have to simply accept the foreclosure as an inevitability--immediate action is required.
- Get counsel. Consult an attorney or a free foreclosure avoidance counsel approved by the U.S Department of Housing and Urban Development. Having professional assistance will help you understand the foreclosure laws in your state, gather the required documents, negotiate with your lender and make the necessary moves to possibly avoid your foreclosure.
- Modify your loan. Call your lender and ask for the Loan Mitigation Department. You may be able to re-negotiate your loan to reduce your monthly payment to a more manageable amount. You may be able to reduce your interest, change from an adjusted rate to a fixed rate, or extend the period of your loan. There are several government programs that may be able to assist you, including Making Home Affordable.
- Check your interest rate. Carefully read your paperwork and the interest rate on your loan. If you have an adjustable rate mortgage, you may be unable to keep up with your mortgage because of a recently increased interest. You may qualify for programs such as FHA Secure to help you change your rate and get more affordable payments.
- Short sales. If you don't believe you will be able to handle reduced mortgage payments, you can opt to sell your home before it is foreclosed. However, you may be unable to find a buyer to purchase the home for the amount you owe on the mortgage--especially if the property has decreased in value. Discuss this option with your lender to determine if they will approve a "short sale". A short sale occurs when they lender agrees to take less money than the debt owed for the home.
- Deed in lieu. As a last resort, you can request the lender takes the property rather than proceeding with the foreclosure. This is known as "deed in lieu of foreclosure". This can be less harmful to your credit history than a completed foreclosure. Be sure to verify that you will not be held responsible for the owed mortgage debt after turning over the deed. Home Affordable Foreclosure Alternatives is a federal program that offers lenders incentives to approve alternative methods such as short sales and deeds in lieu.
Reduce other expenses
If you are struggling to manage your monthly mortgage, it's important to budget your income carefully. Whether you are trying to save your home or losing it inevitably, saving as much money as you can is imperative at this time. Start cutting unnecessary costs by:
- Looking for package deals for services like cable and internet: Depending on the severity of the situation, you may opt to temporarily canceling these altogether.
- Shopping for cheaper car insurance: The auto insurance industry is highly competitive--if you can have favorable driving record you may be able to find a more affordable policy easily.
- Changing your habits: Eliminate luxuries, shop in cheaper grocery stores, buy food and other essentials in bulk.
Talk about it
A foreclosure is one of the most stressful and emotionally trying experiences you will go through. Communication is a crucial coping mechanism during a crisis, and can vastly alleviate distress and worry. Rely on your family and friends during this difficult time. While you may be unable to afford the help of a professional therapist, there are free support groups you can attend to vent frustrations and empathize with others suffering similar stress.
Finding a new home
If you cannot save your home, you will have to make plans for a place to stay. The damage a foreclosure inflicts on your credit score may prevent you from purchasing another home for years, and can negatively affect your chances of securing a rental. Plus, if money is scarce, gathering enough for a rental deposit may be close to impossible.
A good option may be housing with a month to month lease that forgoes credit checks, or getting a co-signer. You can also try to level with the landlord or property manager and be honest about your situation. He or she may be understanding and agree to give you a chance.