Avoid Foreclosure With A Personalized Home Loan Modification

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Avoid Foreclosure With A Personalized Home Loan Modification

Foreclosure has turned from being a four letter word so taboo it was barely mentioned to a common feature of life we have nearly got used to. Can we avoid foreclosure? Or is the common household doomed to foreclose and buy again depending on the economic climate?
Well although economic pressures can sometimes cause irreversible damage to a family’s income and resources making foreclosure the only way out this does not have to be the general rule. There are steps we can make at every stage of economic hardship to try to avoid the “f word”.

The first fact that we must understand is that nobody likes a foreclosure, banks don’t like them, the government hates them and you and I certainly don’t want anything to do with it. All this begs the question; if everyone hates a foreclosure why have them? The same question could be applied to wars, famine, violence and the answer may be similar. Often one or more of the parties involved simply don’t have the will to continue working towards a positive outcome.

Well, enough generalities and poetic comparisons what can a real family or individual do to avoid foreclosure.

Step 1. Don’t buy a house outside of your means. Obviously if you already own the house this advice comes a little late but for any new home buyers it is great advice to not be swallowed up by the temptation of paying more than you can afford for a house. A good rule of thumb is to not pay more than 30% of your income on your home. This gives you a little bit of a safety net if things go bad and the opportunity of saving a portion of your income for a rainy day.

Step 2. Control spending. Be ruthless. If income and expenditure are not tallying take control of your budget and keep to it.

Step 3. Talk to your bank as soon as possible. Banks hate foreclosures because they more often than not lose money and it is not what they prefer to be doing. They are not estate agents they are banks that want to be making money by lending and investing not sweating the details with a bad house sale. If you approach them before your credit is in the dirt and you provide them with a plan they will try and work with you.
Options open to your bank you might apply for are payment holidays for a determined amount of time if you have evidence that your income situation will change in the future, or a full on loan modification. Remember these modification actually make more money for your bank. What do you think they will prefer, foreclosure or a making more money on your mortgage?

Loan modifications come in a large variety of colors and shades. You can modify your loan to last longer which will make your monthly payments lower. Imagine you owe your bank $1,000 and you need to pay it in three months, $333 and you can’t afford it, so you ask the bank if you can pay the same amount in ten months making it a much more affordable monthly payment of $100. The only glitch with this option is that you end up paying more interest. Another option is to change your mortgage provider to one that is willing to charge you a lower interest. This is a great option that is often combined with a larger mortgage (not a good idea in most cases) and a lengthening of the loan’s tenure (also expensive in interest), the only problem is that changing mortgage providers or even just changing interest rates if your bank is willing to renegotiate terms is often a lengthy process.
The thing to remember is that there are options, the ones we have discussed are just a sample. Talk to your bank or even with a financial adviser and study what options you have, just don’t give up.