Some people think that refinancing is a good option when they are trying to avoid foreclosure. This is generally a wise idea, if you have equity in your home and if you refinance before your credit is damaged from the defaulted mortgage. One main problem is that many borrowers do not land into this category. In general, foreclosure victims have very poor credit and little equity. This results in the majority of borrowers facing foreclosure and wasting important alternative opportunities attempting to find a foreclosure loan.
A better solution is a loan modification with your existing lender. This is when the terms of your existing mortgage are altered to produce a lower monthly payment. In reality, it is just like a refinance, but your credit and equity are not a large determining factor, like a refinance. In most cases, the interest rate is lowered and the length of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even lowered to reach the target payment.
In some cases, simply asking your financial institution for a loan modification will work. But more often than not, you will need to hire a professional mediator to work on your behalf. When you hire a professional, make sure you do not pay money up front, or if you do, it goes into an escrow account until the case is complete. If you do not get results, you should not have to pay for their efforts! Do your research and be careful not to get taken advantage of. New laws are in place to protect homeowners, but criminals will always be there to steal your money if you let them.
When working with your financial institution, you will have to complete a loss mitigation package when requesting your loan modification. This will help them determine your qualifications. This is where a professional will come in handy, since getting turned down can be final. It is important to submit a package that is complete and can be approved the first time around. You may be asked to show proof of income, as you did when you obtained the original loan. Whether or not things have changed with your personal finances is one of the things that the financial institutions will look at.
If the value of your home has dropped and you are "upside down" in your loan, then you need to decide if keeping your house is even the best decision. As I said earlier, you may qualify for a loan modification with a principal reduction, but selling the home may be your best option. When you are upside down in your mortgage, a short sale can be an easy way out. A short sale is when the house is sold for less than the payoff amount and the bank forgives the difference.
Short sales can be tricky anyway, because your lender will not easily agree to this solution and may pursue a deficiency judgment after the home sells. It is very important to get your agreement in writing and to make sure they waive their right to pursue this deficiency judgment at a later day. We never recommend owners attempting a short sale on their own. Professional short sale negotiators or real estate agents specializing in this type of sale are available at little or no charge to the borrower, so take advantage and make sure your rights are protected.
Regardless of what you go with, it is important to understand that you have options and allowing the home to go to foreclosure is rarely a good idea. Your credit will be tainted for the next decade and purchasing a new home will be virtually impossible until you have recovered. Do not be afraid to request help or seek a professional to help you over these rough times.
Author Resource:-
Nick writes for the ForeclosureFish website, which gives homeowners the information and resources they need to avoid foreclosure by themselves and fight back against the bank's lawsuit. The site describes numerous solutions to save a house, including foreclosure refinancing, deed in lieu, repayment plans, stopping a sheriff sale, bankruptcy, and more. Visit the site on the web to read more about how you can avoid foreclosure and eviction, repair your credit, and establish a long term financial plan once a financial crisis is over: http://www.foreclosurefish.net/
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