Homeowners who have defaulted or are at risk of defaulting on their mortgage may believe that the only solution to their mortgage problems is foreclosure. However, that is not the case. There are options available and those options are listed below:
Homeowners who are current on their mortgage payments may find that refinancing is the answer. They can take advantage of today’s low mortgage rates, reduce their monthly payments, and most importantly, keep their home. In early 2009, the Obama administration launched the Making Home Affordable programs in an effort to help stabilize the housing market. For more information about these programs, visit www.MakingHomeAffordable.gov.
Mortgage lenders will often work with homeowners who are in default or at risk of defaulting to help them keep their homes with a number of their own options. These workout options can include forbearance, a repayment plan, reinstatement, and loan modifications. Homeowners who are seeking this option are encouraged to look into the Making Home Affordable programs. A link to the website is provided in the paragraph above.
Sell and Bring Cash to the Closing Table
Another option is to sell the home and bring cash to the closing table to cover the upside down costs. In order to do so, one may have to liquidate assets such as stocks, bonds, and individual retirement accounts. This option allows the homeowner to avoid the credit damage that foreclosures or short sales can incur. Please consult with a finance/tax/legal professional before liquidating assets to bring cash to closing.
A short sale is a circumstance in which the seller owes more money on the mortgage loan (including any other liens on the home) than what it would likely sell for on the market and is unable or unwilling to bring cash to the closing table. A short sale is considered one of the last efforts before a foreclosure. A short sale does damage credit but not as much as a foreclosure would. For this reason, a short sale is still preferred. A short sale also lessens the impact a foreclosure can have on the surrounding community. Homeowners seeking this option should contact their lender. The Making Home Affordable programs also has information on this foreclosure alternative.
Deed-In-Lieu of Foreclosure
When the distressed homeowner and lender agrees to trade the property in exchange for the cancellation of the mortgage note, this is called a deed-in-lieu of foreclosure. States with a long foreclosure timeline are more willing to accept this option because they are able to obtain the property quicker than going through the foreclosure process. Market conditions also influence a lender’s decision in a deed-in-lieu foreclosure. Lenders are more willing to accept a deed-in-lieu of foreclosure in an appreciating market than a declining market.
A homeowner may not be able to pursue any of the options above if he/she waits too long to take action, when all alternatives are exhausted, by simply doing nothing, or by walking away. Sometimes, a foreclosure is in the best interest of a distressed homeowner. However, by doing so, credit will be inevitably damaged.