What Happens When I Can't Afford My Mortgage?
Getting approved for a mortgage loan and moving into your property is an indescribable feeling, and many people long for the day when they're able to afford their own house. Unfortunately, money problems can arise due to loss of income or an injury and threaten a homeowner's happiness. Regardless of your level of responsibility, your financial standing can quickly change, wherein you are unable to afford your mortgage loan.
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Effects of Non-Payment
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Failure to pay your mortgage loan results in a foreclosure. Lenders operate differently; and whereas one lender may begin the foreclosure process after three months of non-payment, another lender may wait six months. A foreclosure involves the repossession or reclaiming of a property. Homeowners move out of the home, and lenders sell the property at auction to recoup lost funds.
Consider a Mortgage Modication
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Foreclosures are costly for lenders, and auction homes typically sell for less than the mortgage balance. In tough economic times, the majority of lenders are willing to work with homeowners to strike a deal. The goal is to keep homeowners in their homes. And, if battling money problems, homeowners may qualify for a loan modification. This provision results in a lower interest rate or mortgage payment. To qualify, borrowers must communicate with their lender and provide evidence of financial hardship.
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Benefits of a Refinance
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Dealing with an adjustable rate mortgage or an interest-only mortgage often results in higher future rates. Rate increases can trigger higher monthly payments. If unable to keep up with monthly payments, homeowners can consider a refinance to obtain a lower, fixed rate mortgage. Mortgage refinances are expensive, and homeowners have to complete a new loan application and obtain an approval. What's more, closing costs and other fees such as a home appraisal and title search are common with refinances.
Prevention/Solution
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Getting out of a mortgage loan fast is key to salvaging a credit rating. It's best for homeowners to seek help at the first sign of distress. This might involve placing the house on the market and locating a buyer or renting the home to another family and finding a cheaper place to live.
Understanding Short Sales
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Depending on the area, a property can sit on the housing market for months or years with little to no interest. Since distressed or struggling homeowners need to act fast, it's wise to consider a short sale. This involves selling a property for less than the mortgage balance, wherein the lender forgives the remaining balance. The mortgage lender loses money on the deal. Even so, short sales involve fewer hassles when compared to foreclosures, and lenders aren't stuck with empty properties. Lenders determine a borrower's eligibility for a short sale based on their financial standing.
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References
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