Avoiding Foreclosure 4/26/2010
Rising foreclosures have been contributed to runaway home appreciation rates that have lead some to resort to unconventional methods to pay for a home. One unconventional short-term loan called the option Adjustable Rate Mortgage (ARM) gives the borrower a choice of whether to make a payment as if the loan was a 30-year fixed rate or a 15-year fixed rate loan. The borrower could also make an interest-only payment which is the minimum payment required. Other unconventional methods of financing include loans that require no proof of income. Like the option ARM, these loans carry a fixed rate for a limited time. When the limited rate period expires, the interest rate increases. This often puts the monthly payment beyond the borrower's ability to pay.
How to Keep Your Home
Here are 10 tips from the the U.S. Office of Housing and Urban Development on avoiding foreclosure:
- Don't ignore the problem. The further behind you become, the harder it will be to reinstate your loan and the more likely you will lose your house.
- Contact your lender as soon as you realize that you have a problem. Lenders do not want your house. They have options to help borrowers through difficult financial times.
- Respond to all mail from your lender. The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
- Know your mortgage rights. Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and time frames in your state (every state is different).
- Understand foreclosure prevention options. Valuable information about foreclosure prevention (also called loss mitigation) options may be found on the Internet at www.hud.gov.
- Contact a nonprofit housing counselor. HUD funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance.
- Prioritize your spending. After health care, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment.
- Use your assets. Do you have assets — a second car, jewelry, a whole life insurance policy — that you can sell for cash to help reinstate your loan?
- Avoid foreclosure-prevention companies. Many for-profit companies will contact you promising to negotiate a loan work out with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide for free if you contact them.
- Avoid special offers that promise foreclosure recovery. They're likely to be scams that seldom deliver.
Source: U.S. Office of Housing and Urban Development
Get More Information
If you would like more information about how to avoid foreclosure, visit the U.S. Office of Housing and Urban Development (HUD) online at: www.hud.gov.