If you are struggling to make your mortgage payment each month, you are likely concerned about the possibility of losing your home through the foreclosure process. In addition to losing your home, you will also damage your credit. Foreclosure can be avoided, in many cases. Refinancing the loan can provide the relief you need to stay above water. It is important to explore all possible options when trying to save your home.
Foreclosure
When you default on your mortgage loan, the lender initiates the foreclosure process to legally repossess your home. A foreclosure is carried out either judicially or nonjudicially. Some states laws specify which method is allowed, while other states allow the lender to decide. Typically, if the mortgage deed contains a "power of sale" clause, the lender has permission to sell the home without filing a lawsuit against the homeowner. The length of time a foreclosure takes also depends on the state's laws. A foreclosure generally ends with the sale of the home through a public auction. If your state has a right to redemption law, you may be able to purchase back the home by paying the entire loan balance plus fees. The redemption period can range from a few days to a year, depending on the state. If you are facing foreclosure, it is important to communicate with your lender. Foreclosure can be avoided in many cases.
Refinancing
Refinancing can often be a way to avoid foreclosure. If you are struggling to pay your mortgage, consider refinancing at a lower interest rate to reduce your payments. In most cases, you must be current on the loan, which means you cannot be more than 30 days behind on your payments. Your home will need to appraise at the purchase price of the home or higher. Your credit score and employment will also affect your ability to refinance.
The Making Home Affordable Program features a more forgiving refinance option for homeowners with less than perfect credit and homes that have declined in value. Through the program, homeowners with a loan guaranteed by either Fannie Mae or Freddie Mac are eligible as long as the mortgage does not exceed 125 percent of the current market value of the home. Homeowners who do not qualify may be eligible for a loan modification through the program. A loan modification also reduces the interest rate and will extend the length of the loan to bring down the payment to less than 31 percent of your monthly income. Homeowners interested in refinancing can contact their lenders or call the HOPE Hotline at 888-995-HOPE.
Credit
Foreclosure will have a significant impact on your credit. According to MyFICO.com, payment history accounts for 35 percent of a credit score. As soon as you fall behind on your payments, you may feel the impact even before the foreclosure process has begun. A foreclosure will remain on your credit report for at least seven years from the date of sale. Some states allow deficiency judgments for the difference between the sale price and amount remaining on the loan. If your lender pursues a judgment, the lender can collect the money owed by any legal means, including property seizure and wage garnishment. Chapter 7 bankruptcy is a foreclosure alternative that allows you to avoid liability. If you choose to file bankruptcy, ownership rights to the home are given back to the lender and the debt is forgiven. Your credit score will suffer for at least 10 years from the date of filing the bankruptcy petition.
Assistance
Housing-counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) can help you avoid foreclosure and answer any questions you have about the process or solutions. Counselors specialize in preventing foreclosure and preserving credit. After the counselor assesses your case, all possible options are explored. Saving your home may be as simple as creating a budget or prioritizing your spending. Other homeowners may qualify for state or federal assistance to reduce their payments. In some cases, you may not be able to keep the home and would benefit from a short sale or deed in lieu of foreclosure. Find a nonprofit agency near you that provides HUD-approved housing counseling by visiting the HUD website (see Resources).
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