The possibility of losing your home in a foreclosure can ignite feelings of fear and anxiety. If you find yourself in this situation, there are many options you can try regarding how to avoid foreclosure on your home. To help save your home, here are the top ten best ways to avoid foreclosure:
1. Work With Your Lender
The foreclosure process begins when your lender files a notice of default stating that you are over the limit of missed payments allowed in the mortgage contract and that they have begun legal proceedings for foreclosure. At this stage, the pre-foreclosure stage, you have a chance to discuss loss mitigation (the process of trying to protect the homeowner from foreclosure) with your lender.
Don’t wait for the notice of default to arrive before you act. Instead, contact your lender to let them know when you face extenuating circumstances that may affect your ability to meet mortgage payments. The advice is the same if you are already in the pre-foreclosure stage.
The best way to prevent foreclosure on your home is to work with your lender in finding a way to save your home from foreclosure. Because it is an expensive and lengthy process, your lender would prefer to work with you to figure out how to prevent foreclosure on your home.
2. Ask For a Mortgage Reinstatement
A mortgage reinstatement is a straightforward approach to how to stop foreclosure on your home. You catch up on missed payments by paying the lump sum of what you owe plus late fees after your mortgage has defaulted. You may get a mortgage reinstatement quote or letter from your lender detailing the total amount owed, a due date, and what will happen after the payment is made. Once the payment is cleared, the defaulted mortgage is reinstated, and you continue to pay your monthly payments as scheduled for the loan duration.
3. Apply for a Repayment Plan
A repayment plan is a way to pay back the money owed in missed payments if you could not make payments for several months due to a temporary setback but can now resume making regular payments.
For this to work, your income must be enough to cover what you owe in addition to current payments. When putting together a repayment plan with your lender, be honest about what you can afford and never agree to pay more than your budget will comfortably allow.
Refinancing is trading in one loan for another with a lower interest rate. This approach works best if you can still meet your mortgage payments, but foresee your mortgage defaulting soon. Your credit must be in good standing, you must be up to date on payments, and your income must be high enough that you can afford the new charges to qualify for refinancing.
5. Loan Modification
Unlike refinancing, a loan modification changes the original terms of your existing loan. A modification can reduce payments (but extend the duration of your loan to compensate), lower the interest rate, and incorporate missed payments into the remaining balance. To qualify for a loan modification, you do not need to have a high credit score or provide proof of income, but you must provide evidence of financial hardship and be behind on your payments.
Mortgage forbearance allows you to pause your mortgage payments for a certain period. During this time, you are expected to get your finances back in shape and prepare for resuming regular payments. You will be expected to pay back the amount accrued while in forbearance at the end of the forbearance period. The accumulated amount can be repaid in a lump sum or as part of a repayment plan.
7. Short Sale
A short sale allows you to sell your home for less than what you owe. This might be a solution when you owe more money than your house is worth. You must submit a proposal for your lender to approve, including evidence of hardship.
If approved, you are responsible for the selling process, but the lender is responsible for all negotiations with the buyer. The sale proceeds go to the lender, and the lender either forgives the difference or gets a deficiency judgment, which requires you to pay back the difference.
8. Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is a legal document transferring your home ownership to your lender in exchange for a release from your mortgage obligation. Some lenders will forgive the balance you owe after the sale of your home, but they are not required to do so, and you might still have to pay the difference.
Before choosing to go with this option, it is best to consider other options for loss mitigation, such as the ones mentioned before. A deed in lieu of foreclosure will significantly impact your credit and future mortgage prospects. You will be unable to buy a new home for several years since there is a waiting period of 4 years for a conventional loan after a deed in lieu.
9. Consult With a HUD-Approved Housing Counselor
If you are unsure how to proceed, speak to a HUD-approved housing counselor. The US Department of Housing and Urban Development, or HUD, offers free or low-cost housing counseling.
Housing counselors can help you understand the law and your options, arrange your finances, and represent you in lender discussions. You can call (800) 569-4287 or look for a counselor online to get started.
10. File for Bankruptcy
Filing for bankruptcy should be a last resort if it is too late to explore other loss mitigation options and there are no other options on how to save your house from foreclosure. When you file for bankruptcy, the court will examine your assets and liabilities and decide whether to discharge your debts. However, if the court determines that you have enough assets to pay your debts, your case can be dismissed.
A bankruptcy discharge does not necessarily have to apply to all your debt. The court can decide to only discharge part of your debt, and you will still have to repay the debt balance that was not discharged. Filing for bankruptcy causes considerable harm to your credit score, and the bankruptcy filing will stay on your credit records for seven to 10 years.
Being aware of all possible loss mitigation methods is the first step in knowing how to save your home from foreclosure. The earlier you can let your lender know if you anticipate trouble paying your mortgage, the better, so you can discuss your options for loss mitigation.