If foreclosure is looming on the horizon, now’s the time to kick into gear. Just because you’ve had trouble making payments doesn’t mean you have to lose your home. Instead, if you take action quickly and work with your lender, there’s a very good chance you can avoid foreclosure.
These are three things you can try before accepting foreclosure.
Re-Amortization or Repayment Plans
If you still have a good source of income but have just fallen behind on your payments, a re-amortization plan or repayment plan can help.
These plans are predicated on you being able to make all your payments in the future. Meaning the loan as a whole works for you, but you just couldn’t pay temporarily due to financial hardship.
The way it works is your lender basically wraps up all your overdue payments into your old loan, then re-amortizes (redistributes) those amounts over the course of the loan.
Once your past due payments are re-amortized, you can continue making payments as normal.
Another similar option is a repayment plan. Instead of re-amortizing your back payments, you and your lender could just work out a repayment plan of some sort. This is tougher for you because the back payments will be distributed over a shorter time, say two years instead of 20 years. However, it’s easier to sell the lender on this than re-amortization.
What if you just can’t afford your loan in its current condition at all? Your lender may still be willing to work with you.
In this case, you’ll need to completely rework your loan from the ground up. Different monthly payments, different length of the loan, possibly a different interest rate and payment terms.
A loan modification’s goal is to take your existing loan and transform it into something that makes more sense for your financial situation.
Short Sale, Deed in Lieu
Finally, if you really can’t continue to afford your home, you can still avoid foreclosure by working with your bank in an amicable way.
One way to do this is to help them find a buyer. If you can find a buyer for the home, the bank may be willing to accept the buyer’s bid and forgive any additional amount you’d owe the bank. This is called a short sale.
Another option is to do a “deed in lieu.” This is where you just give the bank the house. In exchange, the bank releases you from the mortgage. This helps the bank avoid the trouble of having to actually foreclose on the house.
Both a short sale and a deed in lieu will have a seriously adverse impact on your credit.
These are your options before accepting foreclosure. If you’re facing foreclosure, there are quite a few options at your disposal before it gets to that stage.