Becoming a home owner is expensive and takes a lot of work, but most people don’t realize that, once you have bought a home, you will, most likely, have to work even harder to keep it. Owning a home is significantly different than renting and, while it brings a lot more satisfaction, it is also more expensive. The habits that allowed you to transition from renting to owning will have to be kept up if you want to avoid default and losing your home.
Many times, things that will be out of your control will happen, and you will be in danger of losing your home, but there are also plenty of things that you can do to avoid that. Giving up your home is a nightmare and downright depressing, and you will want to avoid that at all cost. The good news is that, even when you are in danger of losing your home, you have options. Following the tips listed in this article will save you from having to endure a painful mortgage default.
What is a Mortgage Default and What Does it Entail?
Mortgage default happens when a borrower is late on a monthly mortgage loan payment or is unable to make mortgage payments anymore. Other actions which break the mortgage agreement, such as not paying property taxes, may also lead to mortgage default. The default allows the lender to foreclose on the mortgage home, in which case the home owner will most likely lose the ownership.
Mortgage default normally happens after the borrower is 30 to 60 days late on his mortgage payments, or when the borrower fails to pay the property taxes within 30 days after he or she was notified by the lender and asked to remedy the situation. In order to better understand when default happens in your case, you should carefully examine your mortgage documents, because the rules will be different from one lender to another.
Tips to Protect Yourself from a Mortgage Default
Trouble with your mortgage can start with just one missed payment, but it’s usually all downhill from there. The best way to avoid this kind of trouble is to plan ahead. Mortgage payments are, most likely, your largest monthly bill, so recovering after one missed payment is really hard. Here are a few tips that will help you avoid being late or missing mortgage payments:
- Keep savings. Saving when you have to pay off a mortgage loan is very difficult, but it is not impossible. Examining your monthly budget and cutting out unnecessary expenses, such as going out to eat or impulsive spending, can go a long way when it comes to saving money. Having even a few thousands saved up can be a real blessing if you have trouble making a monthly mortgage payment.
- Make the monthly payments. Having a plan in place and making timely monthly mortgage payments is the easiest way of avoiding mortgage default, but that might not always be possible. If something unforeseen happens and you are not able to make that month’s payment, pay what you can and call your lender to explain the situation and discuss options. You would be amazed at what a simple phone call can do to help you avoid getting into more trouble with your lender.
- Talk to your lender as soon as you have a problem paying your mortgage. Don’t wait until the monthly payment is due, you receive a notice or, even worse, go into foreclosure. Call your lender as soon as you see signs of financial trouble, explain the situation, and work with them to find a solution. As long as you are able to recover, your lender will most likely present you with a few alternatives, which will save you from default. Default and foreclosure are complicated and expensive processes for your lender, as well, and he will prefer to have you get back on track with your mortgage, than spend more money getting you out of your home.
- Understand the process. It may take up to 6 months until you will actually have to leave your home, so that gives you plenty of time to examine your options and take action. Panicking is the worst thing you can do, so the best thing to do is to talk to a professional and try to work something out, so your home won’t have to go into foreclosure.
- Consider refinancing. By refinancing, you will be paying your remaining mortgage loan by taking out a new loan. Refinancing is a good way of avoiding mortgage default, but you can also end up with higher monthly payments, so do your homework before you consider this option. Mortgage refinancing can also be an expensive process, a fact which must be taken into consideration when comparing the amount that you have left on your original loan to the new loan.
Mortgage default and losing your home can best be avoided by planning ahead and saving some money. Unfortunately, that is not an option for many home owners, so following these steps and acting before it is too late can protect you and your family from the risk of default and ending up having to give up your home.