It is highly unlikely that anyone would sign a real estate contract to purchase a home with the intention of defaulting on the loan. However, sometimes life throws you a curve, and homeowners can find themselves in extremely difficult situations, leaving them facing a possible foreclosure. There are options however, for what you can do to avoid or stop foreclosure and save your credit as well.
If you find yourself in a position where continuing to pay your mortgage is becoming increasingly difficult, there are a number of things you can do to address the situation and avoid foreclosure.
Work with Your Lender – Stay in touch with your lender. The lender is often an ally because they truly want you to keep paying your mortgage rather than defaulting into foreclosure. At the beginning of any difficulty, you need to communicate with your lender to explore options such as:
- Setting up a repayment plan with lower payments to help get you through a rough spot, then resuming full payments when the situation has been resolved.
- Renegotiating the terms of your loan to lengthen the term of the loan, lower the interest rate, or even roll any delinquent amount into the loan before re-amortizing the loan.
If working with your lender doesn’t eliminate the problem, your best alternative could well be to get out of your mortgage. There are two options for you, should that be the case – a short sale or foreclosure.
Foreclosure – Exactly what is a “foreclosure”? A foreclosure, including a Deed-in-Lieu of Foreclosure, means that your lender will take over ownership of the house and sell it to recover as much of the loan amount as possible.
Letting your house go into foreclosure should be your last alternative. Having a foreclosure on your credit report will negatively affect your credit score. In fact, your credit score could be reduced by approximately 250-280 points. Additionally, you may need to wait approximately 36 months after a foreclosure before a lender will offer you a reasonable rate on a new mortgage.
Short Sale – What is a “Short Sale”? To stop foreclosure, a short sale is often much more attractive option. In a short sale, your lender agrees to accept a sale price that is less than the amount you owe on the mortgage. This approach is especially helpful when the equity you have in your home is not sufficient to cover all the costs of selling (sometimes referred to as being “upside down” on your mortgage).
Completing a short sale on your property will also impact your credit score. However, the impact is less than a foreclosure, and your credit score will drop by approximately 80-100 points. The wait before you can reasonably apply for another mortgage is usually 18-24 months as opposed to the three years associated with a foreclosure.
As you can see, letting your home slip into foreclosure isn’t the best alternative over the long-term. Even though the short sale process may be more complex and involve a number of entities, it is often a good alternative to avoid foreclosure.
Our experts are here to help you evaluate the options. If a short sale is the best option for you, we can guide you through the process. Make the best decision for you and your family: for a free, confidential consultation about short sales and avoiding foreclosure, please contact Atkinson Realty and a short sale and foreclosure expert will contact you right away.