Basic Strategies to Avoid Foreclosure
Editor’s Note: This post was originally published in August 2020.
If you’re worried about missing your mortgage payments, you’re probably looking for strategies to avoid falling behind or facing foreclosure.
Fortunately, there may be ways to find real help and stay current on your mortgage payments. Depending on what’s causing your financial hardship, minor tweaks to your budget or a temporary relief program from your lender could be the answer. In other cases, avoiding foreclosure may require more drastic steps. Here’s what you can do to find help.
What happens when you go into foreclosure?
Foreclosure is a legal process that allows a lender to take possession of a home. If you fail to make your mortgage payment for several months in a row, the lender may initiate the foreclosure process.
The exact process varies by state, and it can take months or even years to complete. At the end of the process, the property will usually be sold to repay some or all of the remaining mortgage balance.
Beyond losing your home, you can also expect the process to damage your finances and credit. Here’s what happens:
- Default: The loan can be considered in “default” if you’re just 15 days behind on your payment. The lender may call you to try and find a solution, or send a notice of default stating how you can get current on your loan.
- Foreclosure proceedings: After 3 to 6 missed payments, the foreclosure process usually begins. Once it is initiated, you may have 90 days to find a resolution with your lender. Some remedies might include repayment plans, forbearance, loan modification, refinancing or selling the home.
- Notice of sale: If no solution is reached, the lender will move forward with selling the property. If the home sells for less than what you owe, you may have to pay the difference.
- Loss of the home: Once the foreclosure is complete, you have to move out of the property.
The good news is that homeowners often have options for preventing foreclosure from happening. In some cases, you can even stop the process after it’s already begun. But the earlier you seek help, the more opportunities you may have to avoid foreclosure.
3 options for preventing foreclosure
Your options for preventing foreclosure depend on your situation. Before you fall any further behind on the mortgage payment, review these options to see what could be a fit.
1. Adjust your budget
A somewhat obvious solution (but one you shouldn’t overlook) is to adjust your budget. The goal is to free up funds that you can reallocate toward your mortgage payment.
This may not help you much if you’ve already missed multiple payments, or if foreclosure proceedings have already begun. But if you’re just beginning to struggle with your mortgage, it could help tremendously.
The task will essentially boil down to eliminating everything you don’t need from your budget. That means cutting out your “wants” and looking for ways to increase your income. Your options could include:
- Renting out part of your home
- Selling valuables
- Canceling memberships you don’t use
- Downsizing to a more affordable vehicle
- Applying for government assistance to cover necessities
2. Work with your lender
Working with your lender can be a critical step in saving your home. If you know you can’t make an upcoming payment, or you’ve already missed a payment, contact your lender or servicer immediately. Working directly with them may be a great way to come up with a solution that’s affordable and tailored to your needs.
Their solutions might include the following:
- Forbearance: For short-term hardships such as temporarily reduced income, forbearance helps by giving you a set period of time where you don’t have to make payments. These delayed payments are often due at the end of the forbearance period, as a lump sum, but some lenders offer a repayment plan or let you add the missed payments to the end of the mortgage.
- Modification: Modification, which involves a total overhaul of your mortgage terms, is typically available if you have had a permanent change to your finances and can’t afford the mortgage payment moving forward.
- Refinancing: Depending on your credit scores and the details of your mortgage, you may be able to take out a refinance loan to pay off your current mortgage. With refinance loans, you may be able to get a lower interest rate or a longer loan term than your original mortgage. This can mean having lower monthly payments moving forward.
3. Sell your home
While it’s rarely ideal, you shouldn’t overlook the possibility of selling your home and moving elsewhere. Maybe you’re hoping to preserve your family home, or you’re simply in love with where you live. But if you go through foreclosure, you’ll have to move anyway. If you sell, you can at least avoid some of the impact to your finances and credit.
Downsizing to a smaller home or apartment, or moving to a different community where home prices are lower, could potentially equate to huge savings, especially if you have some equity and the housing market is strong.
Should you pay for foreclosure prevention?
There are, unfortunately, many companies that take advantage of struggling homeowners. But it’s important to avoid any company that wants to charge you fees for this service, or that guarantees they can save your home.
For real help determining which option is best for you, reach out to an NFCC-certified credit counselor. These nonprofit counselors are experts in all of the foreclosure prevention options available. Not only can they help you adjust your budget, but in some cases they can even step in to mediate between you and your lender.
