Traditional and creative methods exist to aide in preventing a home foreclosure. The act of foreclosure provides lenders with home loan balances when borrowers fail to make mortgage payments for three to six consecutive months. Depending on the situation, lenders are not very forgiving and homeowners must think outside the box to raise much-needed capital. Financial advisors and former victims of foreclosure offer advice to individuals who find their homestead in jeopardy.
Refinance or Modify Existing Loans
Consider either refinancing or modifying your existing loan for a lower monthly payment. This is the first option considered by many homeowners, but the solution is not a simple one. Traditional refinancing results in substantial savings for select individuals with credit scores of at least 650. Applying typically involves the following steps:
1. Talk with different lenders for better deals. Sometimes the company currently servicing your loan cannot offer the lowest interest rate. Pay attention to associated loan fees when calculating total costs. In many cases, lenders can have offices outside the state where you reside but they must have a license to practice in the area.
2. Submit required paperwork to desired lenders including current mortgage loan statements and income information. Complete Form 1003, the Uniform Residential Loan Application, to start the refinancing process.
3. Authorize a credit check and double-check the information for accuracy. The information determines your refinancing eligibility and potential mortgage rates.
4. Get a current market value assessment for the property you want refinanced. Homes that decrease in value are typically not eligible for refinancing.
If you happen to be a homeowner with less-than-perfect credit or wound up owing more than the property is worth, the government can help. The official White House Blog explains alternative refinancing options presented by President Obama.
- Homeowners must owe between 80 and 105 percent of their total mortgage amount.
- Fannie Mae or Freddie Mac must back applicable loans. According to Zillow, either company backs only 60 percent of home loans.
- Amounts must be Conforming Loans or loans that conform to guidelines established by government-sponsored enterprise (GSE). As of November 2012, Conforming Loan amounts range from $417,000 to $625,500 United States dollars (USD) depending on the location.
Inquire About Forbearance Options
Ask your lender about available forbearance opportunities. Forbearance temporarily delays payments while permitting homeowners to remain on the property. Some individuals only pay interest for pre-determined period. Starting in the summer of 2011, the President introduced a 12-month forbearance period for unemployed homeowners. Fannie Mae and Bank of America are a few financial institutions that offer temporary forbearance.
Explore Principal Reduction
Consider asking about principal reduction for lower monthly payments. Loan payments consist of the initial amount, or principal, and interest along with insurance and other applicable fees. A June 2012 CNN Money article found that lowering principal amounts resulted in fewer future defaults when compared with refinancing. Studies found that principal reductions place homeowners on firmer financial footing so they are less likely to re-default. Only financing acquired through private sources (for example, non-government entities) qualifies for principal reductions as of 2012.
Use Home Credit
Temporarily ward off forbearance with a home equity line of credit. Consumer Reports recommends the quick fix if you are unemployed and do not qualify for forbearance. Use the funds for mortgage payments but remember amounts are due later along with other existing loans.
Borrow Against Savings
Borrow against your 401(k) or cash-value life insurance policy to meet mortgage payments. CNN financial experts remind homeowners that selling stocks or cashing in retirement plans typically results in severe tax penalties. You also run the risk of decimating potential retirement plans.
Authorize a Short Sale
Talk to the bank about a short sale when attempts at refinancing and borrowing fail. Short sales occur when properties sell for less than past due mortgage amounts. On the positive side, you no longer owe the bank. Unfortunately, your credit rating may suffer.
If you think outside the box and desperately wish to stave off foreclosure, take a tip from these creative souls.
Turn to Creative Advertising
Allow companies to paint logos on your home, car or body for increased revenue. One California couple became a living billboard for one marketing company who pays the mortgage on each home they cover with various advertisements. The colors can be a bit loud and garish so the opportunity may not appeal to many. One brave individual received a promotional tattoo on their forehead for one lump-sum payment. Plenty of companies are willing to pay if you are open to the possibility.
Become a Human Guinea Pig
Reminisce on college days and earn extra cash by participating in clinical trials. Full-time test subjects make decent money. Interested parties should proceed with caution considering there is always the possibility for a serious adverse reaction. Medical bills would only be an additional stress.
Embrace the Entrepreneurial Spirit
Use web commerce and online auction sites to their full advantage and offer an exclusive item, like your hair. Long, untreated tresses previously sold for $1,200 USD. The money went towards a mortgage payment and holiday family essentials. If the thought of selling hair seems weird, remember it grows back.
The threat of losing a home is overwhelming. Various solutions offer an opportunity to avoid the traumatic experience. Closely examine each foreclosure avoidance technique to discover the perfect approach for your situation.
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