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Secrets to Avoid a Home Foreclosure

Aug 30, 2007
There are many ways to stop or avoid a home foreclosure.

Here is the scene: You were downsized at work as they outsourced your entire department to a foreign country, the car broke down, and you are supporting three children with monster appetites and Ipods. You had to let some things slide and the mortgage payment was near the top of the list. Now you are stuck as the mortgage company is starting foreclosure proceedings. You are wondering if this could have been avoided and the answer is a definite yes.

The first step in foreclosure prevention is to make sure that the mortgage loan you take out is well within your capacity to repay. As home values have spiked upward many lenders have increasingly pushed a variety of creative financing options including interest only loans as well as a variety of ARMs.

Interest-only loans are great if you want to free up extra cash every month or if you are looking to flip a property and are confident it will rise in value. However, they are a two-edged sword and could carve you up financially if you're not careful. And, ARMs, especially some of the more creative kinds that reset often can jack up your payment as interest rates rise.

Like conventional mortgages, interest-only loans come in many different flavors. The rate may change annually or be fixed for a certain time period - say 5, 7, or 10 years. After that time period ends the loan then might have a variable interest rate. Consequently, your monthly payment might go up a substantial amount. And further down the road the loan could revert to a principal and interest loan.

So, what may seem like a convenient way to make lower payments initially or lock up more house may in the end become a weight so stressful that foreclosure becomes your only solution. Just make sure you'll be able to afford the payment you lock in now AND the payment you may have to make in the future. You can't necessarily count on increasing home values to cover the situation. As this is written the market is stagnant in many areas and declining in others.

In regards to avoiding foreclosure, foreclosure prevention should begin at the first sign of trouble in paying the payments, and that means any payments, not just the mortgage. If for any reason your financial situation has changed for the worse then you need to re-evaluate your budget and situation to ensure that serious situations, like foreclosure or repossession do not start to happen. Be especially cognizant of any equity you may have in your home. If you have been paying for many years you may have a substantial amount of equity that you can tap in the form of a home equity loan to pay any bills.

Look for alternate income sources in a crunch. Pick up a part-time job, sell some stuff on eBay, even rent out a room in your house for awhile for some extra cash.

If worse comes to worse borrow enough money from friends or relatives to bring your payments current and then sell your house and pay them back. This at least preserves the home equity you have built up.

Tight situations can sneak up on anyone. The key is to prepare before hand. Have an emergency fund on hand to deal with just such occurrences. Paying yourself first is almost always possible to do. Small amounts stashed away become ever larger amounts that can serve as a nice cushion.

For the vast majority of people a home is the largest and most expensive item they will ever purchase in their lifetime. Barring a windfall of extreme financial gains, most will spend the largest part of their lives paying for their home, and the last thing anyone wants is to lose what they have worked to own for so long.

The first step you should take if you find yourself in a situation where you cannot pay the mortgage is to contact the bank or finance company that holds the note. The fact is financial institutions do not want your home; they are in the business of making money and have little interest in owning property. So, they want money and most times they are willing to work with their customers to see that they can keep their home and continue making the payments. This is especially true for those customers who have a long standing good relationship with the company.

If for some reason this does not work then you should contact one of the many foreclosure prevention services that are around today. They can speak on your behalf with the company that holds the note and will work with them and you to make sure that the home does not go into foreclosure providing that you hold up your end of the bargain, which in most cases means paying a smaller payment amount then normal until such a time that you can once again begin making the full amount. Many times these companies can also get your interest rate lowered and also help to stop any late fees that may be imposed.

Many of the mortgage companies that are currently in operation have foreclosure prevention program options. If you call the company and explain the situation they may tell you that it is best to enter this program that is offered. This is a way for you to avoid losing your house while still making an honest attempt to make the payments as required.

You should be sure to deal with only respectable companies that are willing to help with the minimum of fees that are involved. Be wary of companies that offer to pay off your mortgage to give you a better rate and some cash in your pocket. Most often they are predatory lenders that will raise the rate to an extreme amount. This is all stated in their fine print which they will neglect to mention while you are signing the papers.

Other avenues for finding a loan to avoid foreclosure are the new p2p, or peer to peer lending sites that are cropping up. Prosper and Zopa are two of the better known p2p lending networks. Here, others, like yourself, come together to lend and borrow money. At Prosper, for instance, you post the amount of the loan you're interested in receiving and the interest you're willing to pay and others bid on funding your loan. The prosper loans involve no collateral, so you don't risk your home. These unsecured loans, if funded, are for three years.

When all is said and done, however, there is one method that can ward off foreclosure, if you start soon enough. That is pay yourself first...
About the Author
Let others help you develop a prosperity consciousness for free at the wealth creation and abundance site, Wealthvibes.com. While there check out all the free positive affirmations videos. Visit the new p2p lending site, P2Pwealth.com for a unique way to prosper or for a personal unsecured loan.
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