Financial Assistance to Avoid Foreclosure
Foreclosures are on the rise, thanks to a shaky economy and the housing crisis. As adjustable rate mortgages increase interest rates, and more people face unemployment, foreclosures show no sign of slowing down. Thanks to some recent government stimulus programs, there are ways to save your home from foreclosure. It's important to realize that lenders want to help homeowners save their homes -- they don't want to be in the position of selling homes in today's real estate market.
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Loan Modifications
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Homeowners looking to lower mortgage payments turn to loan modifications. A loan modification reduces the amount of monthly payments to an amount affordable for the homeowner. Loan modifications are an adjustment to the original loan, not refinancing. To modify the loan, the interest rate may be lowered to current market rates, or the repayment period may be extended, thereby lowering the payment amount. Modifications sometimes show as adjustments or settlements on a credit report, which affects the rating negatively. To be successful in approaching a lender for a modification, the homeowner needs to show that although the current payment may be unaffordable, the owner can still pay a significant amount. This is done by presenting an income-to-expense-ratio. This ratio shows the homeowner's current income in relation to monthly expenses. Presenting this to the bank shows that current expenses cannot be met with the homeowner's current mortgage payment and that a loan modification will help remedy this.
Refinancing
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Refinancing can lower the loan rate, which saves money over the life of the loan. This option works for homeowners who still have good credit ratings. Interest rates are currently low, which may help homeowners if they currently have a higher interest rate. Refinancing from an adjustable-rate mortgage to a fixed-rate mortgage also helps homeowners who are facing rate increases. Refinancing a loan also offers the chance to consolidate high-interest credit cards into the new loan.
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Short Sale
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If loan modifications and refinancing are not options, due to no income or other financial difficulties, short sales may offer a chance to avoid foreclosure. In a short sale, the owner sells the home for less than the current mortgage owed. This option is being chosen more and more, especially in tough real estate markets. Short sales take longer than traditional sales because they require bank approvals and the completion of a short sale package. Short sales damage credit ratings, but usually not to the same extent as a foreclosure.
Making Homes Affordable Act
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The Making Home Affordable program is a component of the Financial Stability Plan that launched in February 2009. The program helps homeowners avoid foreclosure by offering loan modifications, short sale options and refinance programs. The program offers free counseling to homeowners facing foreclosure. Although the website and information are helpful to all homeowners, the programs offered are usually limited to Fannie Mae- or Freddie Mac-backed loans.
Foreclosure Considerations
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Attorney Stephen Elias, author of "The Foreclosure Survival Guide," suggests that if a homeowner has decided that his payments are no longer affordable, and that foreclosure is an option, the homeowner should stop trying to make payments and take any extra money and put it into savings. According to the author, foreclosures can take up to nine months from start to finish, which gives the owner time to save up money while living rent-free. Some other suggestions for homeowners facing foreclosure are: filing Chapter 13, which saves the home and forces a debt restructuring; reverse mortgages; and "reinstating" the mortgage, which entails making up all the missed payments, plus fees and interest.
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