You Can Avoid Foreclosure And Stay In Your Home

If you need to understand how to avoid foreclosure and retain possession of your home, you'll want to read this article a couple times. Each of the following methods have been used thousands of times by people in your same situation.

Each technique has its own advantages and disadvantages. When deciding which solution is most appropriate for you, consider the following:

- Will your mortgage payment go up, down, or stay the same?

- How much of a payment can you afford month after month?

- What will you do about your other bills and expenses?

Remember, these programs are meant to be long-term solutions. Any solution that you choose must fit your budget. You won't get approved for some of these options unless you can make a consistent monthly payment.

How to Bring Your Loan Current Again

1. Reinstatement - You bring the loan current by paying back everything you owe in one large installment.

2. Repayment Plan - You catch the mortgage up over a period of a few months with payments that are larger than your usual mortgage. Many lenders will initially offer you repayment plans of 3-6 months. Some will go as long as 12 or 18 months if you can show them that you need more time.

3. Forbearance - This program is really helpful when your financial problems are short-term. A forbearance gives you a smaller mortgage payment for a specific number of months. Some lenders may even let you go without making any payment for a short time. When the forbearance is over, you are generally expected to bring the loan current with a reinstatement or repayment plan.

4. Modification - For many, this is the program of choice. A modification occurs when your lender changes one or more of your loan terms to bring your mortgage current again. It can get you a lower payment if you've had a permanent reduction in income. You can also use a modification to move all the money you presently owe to the end of the loan. With this kind of modification, you just make your regular mortgage payment again.

5. Partial Claim - If you are behind on a FHA loan, you may qualify for an interest-free loan from the government. This loan is used to bring your first mortgage current again. The best part of this program is that the loan from the government doesn't require a monthly payment. You pay it off whenever you sell or refinance.

It may surprise you, but most lenders have no desire to foreclose on your home. They are in the business of lending money, not fixing up and selling homes.

First of all, lenders almost always lose money in the foreclosure process. Some industry experts estimate an average of $40,000 per foreclosure. Secondly, when a bank has a non-performing asset on its books, they can't lend out as much money. That again costs them money.

For these reasons and others, most lenders have a loss mitigation department. This department works with troubled borrowers who are months behind on their mortgage. Their job is to get you into the program that is most appropriate for your situation. You have the option of working with them directly or using a professional service.

Refinancing and Bankruptcy

There are two other ways to avoid foreclosure and retain possession of your home when the options listed above won't work.

6. Refinancing - A new loan can give you a fresh start, but there are many restrictions. As a borrower, you become a greater risk as you fall further and further behind on your mortgage. As a result, any new lender is only going to loan you a certain percentage of your home's value. You may end up with a higher monthly payment than the one you had before. One way around the issue of a higher payment is to pay off some other debts with the new loan.

7. Bankruptcy - Because of its long-term credit implications, a bankruptcy should only be considered as a last resort. A Chapter 7 will only stall the foreclosure process for 30-90 days. It's not an effective long-term solution. A Chapter 13 bankruptcy can force your lender to accept payments on the past-due amount. But, you would also have to make your regular mortgage payment as well. Be sure to seek qualified legal council if this is an alternative you are considering.

Taking the Next Step

No matter what solution you use to avoid foreclosure, you need to take action quickly. Some of these solutions take weeks to implement. Remember to keep track of when the property will be auctioned off or turned over to the bank.