Avoiding Foreclosure During Rough Economic Times
Avoiding foreclosure requires timely, effective action on your part. In tough economic times, you do have options.
You're Not Alone
In tough economic times, foreclosure rates go up. In fact, they are a leading indicator of approaching hard times. Just as foreclosures increase in hard times, so does unemployment. Job loss could have left you unable to pay your home mortgage. Additionally, a tough economy is usually accompanied by a soft housing market making it harder to sell your home.
Whatever the reason for economic hardship, many people are in the same shape.
Don't Ignore the Problem
Many borrowers react to impending foreclosure by avoiding the issue. If you are unable to pay your monthly house payments and have fallen behind, your lender will be contacting you. It is easy to not open the letters and not to face the problem. However, that's the exact thing not to do.
Contact Your Lender
Avoiding foreclosure starts before it is a real threat. As stated above, many borrowers ignore the problem until it is a crisis. Lenders say do the opposite. If you're financial position changes, if you can look ahead and see the likelihood growing that you will not be able to pay your loan, contact your lender. It's important to know the lender does not want you in default. Foreclosure is a costly process, and the lender ends up with an asset he doesn't want. Lenders want you in the home paying them. They may offer refinancing or negotiate on loan terms to make your payment affordable.
In hard times, the government typically boosts the number of programs for counseling and help for homeowners. Again, many people are in your position. The federal Department of Housing and Urban Development is a clearinghouse for these assistance programs. Depending on the severity of the housing market downturn, help may range from counseling to loan bailout.
You Have Options
Don't feel that avoiding foreclosure is impossible. No matter what your particular financial circumstances are, you have options.
- Refinancing. When you refinance, you take out a new loan that pays off your old loan. In hard economic times, interest rates are usually lower and lenders are hungry for borrowers. A lower rate or a longer payout period could lower monthly payments so that they are affordable.
- Equity Loan. If you have equity in your home and your financial distress is short-term, your lender may give you a home equity loan to cover mortgage payments until your finances are repaired.
- Selling. Avoiding foreclosure may be as simple as putting your home on the market.
- Giving the house back. Your lender may be willing to take the home back in exchange for forgiving the loan. This is an extreme step, but you are avoiding foreclosure. If your home is worth less than the amount you owe, you could end up with a small note to pay off.
- Bankruptcy. This should be your last option. It affects your ability to borrow for years and still might not solve all your financial problems.