In 2012, the U.S. saw 2,300,000 foreclosures and 700,000 home repossessions. Nobody wants to lose a home to foreclosure, yet it’s become a reality for many Americans. Surely, the question, “How can I avoid foreclosure?” is coursing through the brains of thousands of Americans even as you’re reading this article. Whether they’re struggling to make mortgage payments or looking to build equity by refinancing at a lower rate, there are many options to avoid foreclosure. Freddie Mac offers five ways to avoid foreclosure that homeowners can pursue with their bank lenders: refinance, forbearance, reinstatement, repayment planning, and modifications.
Refinance to Avoid Foreclosure
Refinancing mortgage tips will reveal that there are two major options. If you have an adjustable-rate mortgage or want to secure a lower interest rate, refinancing mortgage tips the scale in your favor. If you have enough equity to qualify for a new loan, are current on your mortgage payments, have acceptable credit, and want to secure a lower rate, longer term, or different type of loan, refinancing might be the right option. If you’re unable to qualify, the Home Affordable Refinance Program might still be an option. To qualify, you need a loan owned by Freddie Mac or Fannie Mae, to have little or no equity, and to be financially capable of paying the new rate.
Forbearance to Avoid Foreclosure
Those facing short-term financial hardships might be offered forbearance by their lenders. Under this plan, a lender will temporarily reduce or suspend payments for up to six months. Unemployment forbearance might also be available for an additional six months for those who qualify.
Reinstatement to Avoid Foreclosure
You might be able to make your loan current and avoid foreclosure if you can repay the missed payments as well as any associated fees and late charges. This makes sense for those recovering from short-term financial hardship who can demonstrate the ability to repay debts and afford monthly mortgage payments.
Repayment Plans to Avoid Foreclosure
Homeowners who are a few months behind on mortgage payments because of a short-term setback but who are subsequently able to demonstrate financial security might be eligible to start a repayment plan. This enables them to make up missed payments and late fees over a fixed amount of time by combining installments with regular monthly mortgage payments. This is sensible for those who have recovered from short-term financial hardships.
Modification to Avoid Foreclosure
If a recently experienced hardship has brought you to the brink of default, you might be able to modify your loan to a lower rate through the Home Affordable Modification Program. Those who have loans owned by Freddie Mac or Fannie Mae, took out mortgages before January 1, 2009, currently live in their properties, don’t qualify for HARP, are behind on their mortgages, and spend more than 31% of their pre-tax incomes on mortgage payments might want to take advantage of this option. If you don’t qualify under HAMP, you may still be able to work with your mortgage company on a written agreement changing one or more of the original terms of your note like the interest rate or duration of a loan.
More modification, repayment, reinstatement, forbearance, and refinancing mortgage tips are available online and through your loan provider. Be aware that any workout option will affect your credit rating to some extent, so its important to discuss all possible impacts with your lender.