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Save Your Home From The Credit Crunch

Oct 24, 2007
The looming credit crunch is affecting markets world wide. The crunch is fueled largely by the alarming number of home foreclosures. The crisis initially began in the sub-prime lending sector, but is starting to show signs of moving into prime mortgages. If you find yourself one of the unfortunate homeowners that has or is about to miss a mortgage payment, use these steps to hopefully avoid the pain of foreclosure and losing your home.

1. Keep in constant communication with your mortgage servicer. If you are about to miss a payment, call them immediately. Never ignore any phone calls or letters they send you.

2. Remember to pay your mortgage payment before any unsecured credit payments. Credit card companies will let you know the moment you miss a payment, and will convince you your life will be over if you don't pay them. The reason they get so upset is that they can't take anything from you if you don't pay. The banks know they can take your house if you don't pay. Late and missed credit card payments will damage your credit, but nothing like a foreclosure.

3. Never give up hope. There are several steps that can be taken to get you back on the right track with your mortgage lender.

Some of the programs that help you resolve your issues with your lender include:

1. Reinstatement - paying a lump sum to bring the loan current and continuing with payments as normal afterwards.

2. Forbearance - you are allowed to delay payments for a short period of time with the understanding that you will bring the account current at an agreed upon date.

3. Repayment Plan - the lender may allow you to add some of your missed payments to an agreed upon number of future payments, thus bringing your account current.

4. Mortgage Modification - if you can't pay a lump sum to bring your loan current, but can now make monthly payments, your lender may work with you, possibly adding the past due amount to the principal balance.

5. Selling your home - if you have adequate equity in your home, and are able to sell it for an amount to satisfy your mortgage balance.

6. Short Sale - the bank may accept a lesser payoff for your mortgage if you get an offer on your home. Make sure the bank accepts the amount received from the short sale as paid in full with no recourse, otherwise they can come after you for the difference. Banks are warming up to the short sale because they stand to lose even more money if they have to foreclose on your home.

7. Deed in Lieu of Foreclosure - the lender takes ownership of the property and forgives your debt. Much less damaging to your credit than a foreclosure.

8. FHA/VA - FHA loans and VA loans are government backed loan programs that have special programs to help you avoid foreclosure. Contact the VA or HUD if you have one of these loans for more information.

Your mortgage lender won't automatically put you on one of these programs, you must work with them, and keep your promises to them. If you simply stop paying, you will lose your house, and any equity you may have in it. Banks are not in the real estate business, and do not want to own your home, they will work with you.
About the Author
Visit Credit Crunch Help for more information on credit issues and personal finance.
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