Consider Other Foreclosure Options if a Refinance is Unavailable

Many people believe that refinancing is a worthwhile option when they are attempting to stop foreclosure. This is generally a wise idea, if you have equity in your home and if you get a new loan before your credit is hurt from the defaulted mortgage. The problem is that many borrowers do not get placed into this category. Most foreclosure victims have very bad credit and no equity. This results in the majority of debtors facing foreclosure and wasting important alternative opportunities trying to apply for a foreclosure loan.

A better solution is a mortgage modification with your current lender. This is when the terms of your existing mortgage are changed to produce a lower monthly payment. In essence, it is just like a refinance, but your credit and equity are not a major determining factor, like a refinance. In most cases, the interest rate is decreased and the term of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even decreased to reach the target payment.

In some cases, simply asking your financial institution for a loan modification will work. But more often than not, you will need to hire a professional mediator to work on your behalf. When you hire a professional, make sure you do not pay money up front, or if you do, it is placed into an escrow account until the case is complete. If you do not get results, you should not have to pay for their services! Do your research and be careful not to get scammed. New laws are in place to protect borrowers, but criminals will always be ready to steal your money if you allow them.

When negotiating with your financial institution, you will have to complete a loss mitigation package when attempting your mortgage modification. This will help them determine your ability to pay the loan. This is where a professional will come in handy, since getting rejected can be irreversible. It is important to submit a package that is complete and can be approved without delay. You may be asked to show proof of income, as you did when you obtained the original loan. Whether or not things have changed with your income is one of the things that the financial institutions will look at.

If the value of your home has fallen and you are "underwater" in your mortgage, then you need to decide if keeping your property is even the best decision. As I said earlier, you may qualify for a mortgage modification with a principal reduction, but selling the house may be your best option. When you are underwater in your mortgage, a short sale can be an easy way out. A short sale is when the property is sold for less than the payoff amount and the lender forgives the difference.

Short sales can be tricky however, because your lender will not easily agree to this solution and may pursue a deficiency judgment after the home is sold. It is very important to get your agreement in writing and to make sure they waive their right to pursue this deficiency judgment at a later day. We never recommend homeowners attempting a short sale on their own. Professional short sale negotiators or real estate agents specializing in this type of sale are available at little or no charge to the homeowner, so take advantage and make sure your rights are protected.

Regardless of what you choose, it is important to understand that you have options and allowing the house to go to foreclosure is rarely the best idea. Your credit will be damaged for the next decade and purchasing a new home will be very difficult unless you have recovered. Do not be afraid to ask for help or hire a professional to help you through these rough times.