If you find yourself in danger of missing a payment, here is what you should do:
Don't panic: Foreclosure is an orderly legal process that takes at least six months to complete and cannot be started until a homeowner misses four payments.
Talk to your bank: The sooner you tell your lender what is happening the better. They may be able to put you on a plan to reduce or suspend your payment before you ever fall behind. If your hardship will be long term, they may be able to help you apply for a modification (Restructuring your loan terms).
Save money: If you cannot afford an entire payment and your lender won't accept a partial payment, save the money that you would be spending on your mortgage payment. You can use this money to make other mortgage payments down the road or as a down payment on a modification. When you are applying for a modification, lenders like to see that you can save some money, even if it's not a lot.
Trim your budget: Examine your budget and determine whether you can cut other expenses to leave more money available for your mortgage payment. Lenders consider a mortgage affordable when it is around 30% of a homeowner's gross monthly income. If your mortgage payment is less than 30% of your income but you are having difficulty making payments, your lender may expect you to trim money out of other areas of your budget instead of reducing your payment.
Call us: We can help you get started working with your bank to delay or prevent foreclosure.
Here are the “workout” options your lender may offer:
Reinstatement: You pay what you owe in missed payments plus fees by a specific date. This is referred to as the amount needed to become current.
Repayment plan: You and your lender workout a monthly payment plan that lets you catch up on past due payments. This new payment is calculated by dividing the amount that you are behind by the time frame for the repayment plan and then adding the result to your monthly payment.
Forbearance: An agreement to temporarily change or suspend payments. One common method used to calculate forbearance payments is multiplying a homeowner's current income by 30% and using the result as the payment. If your income is zero, your payment may be, too. Forbearances usually last six to twelve months and at the end of the process, the homeowner can apply for a continuation of the forbearance and for a modification. If the extension or modification is denied, the foreclosure process picks up where it left off (Forbearance is usually for unemployed and seasonal-workers).
Refinance: The replacement of an existing loan with an entirely new loan with new (interest rate, payment, and term). Some refinance options are with the same lender while others are with different lenders. Sometimes the homeowner is required to pay closing costs or a down payment. To qualify for a refinance, a homeowner must be current and have a stable and sufficient source of income.
Loan Modification is a permanent change of the loan terms either one, some or all of them. This change must do two things:
The amount that a homeowner is behind is added to the remaining balance of the loan and that amount is spread out over the new amortization period.
Partial Claim or Advance Claim: If your mortgage is insured, you may qualify for a low-interest or interest‐free loan to bring your loan current through the insurer (FHA or private mortgage insurance). This loan may have small monthly payments, or it may be repaid when you pay off your first mortgage or sell your home.
Regular Sale: Homeowners can sell the home for more than the amount left on the mortgage until the end of the Redemption Period. Once the mortgage is paid off, the homeowner can keep the difference.
Pre‐Foreclosure Sale or Short Sale: If you owe more on the home than its value, your lender may agree to accept less than what is owed on the mortgage, allowing a “short” sale. Typically, you would need a 3‐6 month period for your real estate agent to sell the house to a qualified buyer at a price agreed upon by the lender.
Deed‐in‐lieu: A deed‐in-lieu of foreclosure is an option where your lender forgives the debt you owe if you sign over (give back) the property. Typically, you would first have to try to sell the home for 90 days before the lender would consider this. If you have a second mortgage or judgment on the property, a deed‐in‐lieu may not be an option.
Foreclosure: Foreclosure can be a strategy for leaving a home in an orderly manner. Once a first mortgage is foreclosed, the homeowner is, in most cases, no longer liable for the debt. After a Sheriff's Sale, the homeowner can remain in the property until the end of the Redemption Period but does not have to pay the mortgage. This can be a time to save and plan for the future. If the homeowner leaves within a time frame decided by the lender, they may be eligible for relocation assistance that can be used for moving expenses or to pay the application fee and security deposit on new housing.