When you buy a home with a mortgage, you have every intention of paying back the loan as outlined by the terms and conditions. However, your personal and financial circumstances can change over time — and not always for the better. Should that happen, you could soon find yourself with a mortgage that you can’t afford to pay.
If you slip behind on payments, expect to hear from your lender sooner rather than later. And if you avoid them, it won’t be long before a foreclosure notice shows up on your doorstep.
While all of that sounds scary — and it is — there are steps you can take to avoid foreclosure. Here’s what you should do if you find yourself struggling to stay current with payments:
1. Contact Your Lender
This is your time to learn more about your situation, including any options offered by your lender. For instance, they may agree to let you tack on missed payments to the end of your loan. Or perhaps they’ll allow you to pay a smaller amount until your financial situation improves.
It’s a common myth that mortgage lenders would rather repossess a home than service a mortgage. This isn’t true. Banks are in the business of lending money, not managing real estate. If you go into the process with an open mind, you should be able to find common ground that allows you to remain in your home.
2. Short Sale
A short sale is when you sell your home for less than what it’s worth, with your lender taking on the remaining balance. While this is preferable to foreclosure, it will still harm your credit score.
Conversely, many homeowners would rather opt for a short sale than a foreclosure, as the credit impact isn’t as strong and they’re not forced by the lender to leave.
3. Refinance Your Loan
Depending on the equity in your home, the terms and conditions of your mortgage, and your financial circumstances as a whole, refinancing your loan is an option to consider.
For instance, if you can refinance into a 30-year mortgage, it may lower your payment enough for you to comfortably pay it each month.
These are just a few of the many things you can do to avoid foreclosure. If you find yourself facing this unenviable situation, consider all your options and then take action accordingly. You may find that there’s a solution that doesn’t entail you losing your home to repossession.