How These Alternatives Can Help You Avoid Foreclosure

How These Alternatives Can Help You Avoid Foreclosure- 150x150Going into foreclosure can happen for various reasons, such as money problems, divorce, or job loss, and it is never a pleasant experience. However, there are several alternatives that can help you avoid foreclosure, and they are generally considered a better substitute to losing your home.

What is Foreclosure?

Foreclosure happens when a borrower cannot make monthly payments on his or her mortgage loan anymore. This leads to the property being taken by the bank and sold.

Foreclosure involves several stages: after 3 to 6 months of missed mortgage payments, the lender notifies the borrower that he or she is facing foreclosure. This is done through a Notice of Default. A reinstatement period begins, in which the borrower has a chance to correct the default. If the borrower can’t correct the default, he or she will receive a Notice of Sale and the property is listed in a public auction. The winner of the auction will gain possession of the borrower’s property.

Alternatives to Foreclosure

Before you give up and accept that you are going to lose your home, you should know that there are alternatives to foreclosure. In order to determine what your best alternative is, you must discuss this with your lender. By contacting your lender as early as possible, you will have access to more options. Here are some of the alternatives to foreclosure that you could take advantage of:

  • Bankruptcy. Bankruptcy offers individuals the chance of a fresh start by forgiving debts that they are unable to pay, while giving lenders the chance to recover some of their losses through the debtor’s assets. Bankruptcy can become a very expensive process, and it’s recommended that you consult a professional before choosing this option.
  • Reinstatement. If you are able to repay the missed monthly payments, you could make your mortgage loan current, which will help you avoid foreclosure. This alternative is valuable if you use it early on, because you won’t have that many missed payments. Reinstatement can be very helpful if you are recovering from a short-term money problem, and can show the lender that you can repay what you owe and start making monthly payments on time. Be aware that you will most likely have to pay late charges and penalties.
  • Refinancing. Refinancing may be able to reduce your monthly payments by securing a lower interest rate than your current mortgage rate. You are required to be current on your monthly payments and have a fairly acceptable credit score in order to qualify for refinancing. You may also be able to qualify for refinancing through the Home Affordable Refinance Program (HARP).
  • Forbearance. When facing money problems, your lender is able to grant you a “forbearance,” meaning that your monthly payments will be put on hold for up to 6 months, giving you time to get back on your feet. In many cases, forbearance is combined with reinstatement, in order for you to pay the missed monthly payments on your loan, once your financial situation has improved. Forbearance may be extended for another 6 months in case you are unemployed.
  • Repayment plan. If you are a few months behind on your mortgage payments, you may also qualify for a repayment plan. The missed payments and late fees are combined with your regular monthly payments. However, you must be able to prove to your lender that you can afford to pay the past due amounts, and start making monthly payments on time.
  • Short sale. When selling your home through a short sale, the property is put up for sale, and sold for a price that is less than what you owe to your lender. After the sale is completed, you will have to negotiate with your lender to accept the sale price as payment in full. This option will still damage your credit, but, if you are successful in convincing the lender to accept it, you won’t owe anything anymore, unlike foreclosure.
  • Renting. While this option has nothing to do with your lender, you will need to rent the property for an amount that will cover your monthly mortgage loan payment.

Almost all of these options will affect your credit negatively, and are not ideal, but they are better alternatives than losing your home. But this doesn’t mean that you should just go ahead and pick one blindly, without knowing what it involves. Having knowledge about all of the alternatives that are available, how they work, and how they will impact you, is very important and should be thoroughly researched.

Top 10 Steps for Getting a Post-Bankruptcy Loan

bankruptcy- 150x150With the current weakening dollar and bad financial climate, many are losing their jobs and business owners are closing at the same time. And if you’ve lost everything and filed for bankruptcy, then you have to wait at least two years to get a loan. However, you get to qualify for 100% of the financing advanced once this waiting period is over and you’ve met the conditions set by the credit bureau.

Coming back from bankruptcy can be tough. Dealing with your low credit score when in financial talks with lenders and even car dealers can be difficult. The important thing is to get back on track and start moving forward. You have new credit history to build!

The Effects of Bankruptcy on a Victim

A bankruptcy is often a desperate measure taken to avert a desperate situation. Some of the negative effects of a bankruptcy include:

  • Low credit score. Bankruptcy is the leading action that kills one’s credit score for about 7 to 10 years down the line. However, this effect diminishes as this period nears the close.
  • Difficulty in qualifying for loans. Lenders are very sensitive to credit reports in an attempt to avert the risk of defaults. As such, it becomes very difficult for a bankrupt individual to qualify for a loan a few months after declaration of the bankruptcy. You can only qualify for low-amount and high-interest loans if you are lucky.
  • Difficulty in securing a job. Since many employers require you to furnish them with a credit report before being hired, bankruptcy makes it very difficult for one to land a job. Employers consider someone with a good credit rating as one who will not put the company in financial trouble.

On the other hand, bankruptcy offers some advantages:

  • A new financial regime. If you are successful in filing for a bankruptcy then you have the opportunity to start all over again as if nothing has happened before. This is a golden opportunity to rebuild financially; having learned from the past mistakes.
  • Higher credit rating. Your credit score can go below 400 immediately after a successful bankruptcy. However, as you now take a new turn of events with the previous mistakes in mind, you will likely have a higher credit rating than you had before the bankruptcy.
  • Cessation of creditor pleas. Once you file for bankruptcy, you start breathing again because the court stops all your creditors from calling you all the time, sending emails, threatening you, foreclosures and so on and so forth.

Getting A Post-Bankruptcy Loan

  1. Be patient for at least 2 years. Most mortgagors will not look at your application until at least 2 years after the bankruptcy. A few others have capped this waiting time at 3 years. This waiting period is a learning period during which you can make several decisions. For instance, you can circumvent this waiting period in case you are willing and able to remit the down payment straightaway or settle for a loan at a higher interest rate.
  2. Review your credit report. After a bankruptcy, you are desperate for a higher score which can help you to secure a mortgage or any other loan. Make an effort to improve your credit score by obtaining a free report from Equifax, Experian and TransUnion free of charge by visiting and checking for any errors in the credit report. File complaints with the relevant credit agency to have your credit score corrected.
  3. Understand and adhere to bankruptcy conditions. As you plan to apply for a mortgage loan, understand the consequences of the bankruptcy. If you had filed for a Chapter 7 bankruptcy that wipes out all unsecured debts, then it affects your credit history for the next 10 years. On the other hand, a Chapter 13 bankruptcy that prevents a foreclosure will affect your credit history for the next 7 years. However, your credit score will continue to rise as you apply for more credit and make payments on time.
  4. Consider available alternatives. Usually, there are two options to select from. The first one is the traditional lender while the other is an online lender. A traditional lender requires your physical documents in order to make various comparisons—a time consuming process. If you need the loan approved rather quickly then an online lender would be a better option.
  5. Clean up the damage on your credit report meanwhile. What impresses a lender most is the effort that you are making to improve your current credit score. Making prompt payments of your bills and establishing a visible track record of income will help to improve your current credit score. This will not only increase the chances of qualifying for a loan but also qualifying for more money at lower interest rates.
  6. Pay all your current bills in good time. Since your credit score is badly damaged, you must clear all your bills and make any due payments in good time in an attempt to improve your payment history. If you have a credit card, use only a small percentage of the credit limit which you are sure you will manage to pay back when due. Borrowing and paying on time improves your credit score rather than having no activity on your credit cards at all.
  7. Amount of loan and interest rates may not be favorable. Bankruptcy jeopardizes the way lenders view your ability to repay. As you hunt for a mortgage loan, beware that you will qualify for relatively lower amounts at higher than average interest rates because you are considered high credit risk. However, the terms get better as the lender monitors how well you pay your bills post-bankruptcy.
  8. Hire the services of a mortgage broker. After bankruptcy, managing your personal financial services is usually very difficult. You can count on a mortgage broker during this time to help you through the process of searching for a new mortgagor. They will do all the paperwork for you and present the most suitable loan that meets all your requirements.
  9. Secure all the money for your down payment. The more you give as down payment, the lighter the burden you have in principal repayment and interest rate charged. It also shows the lender that you can manage your finances properly once again and secure income, so you will qualify for more credit. In most cases, you may not be able to raise the down payment money through your own efforts. That’s where assistance programs like grants, 401k, Neighborhood or Nehemiah comes in.
  10. Consider these three critical factors. First, the waiting period for a successful mortgage application after bankruptcy is 2 years. Note that this period is variable from one lender to another and the longer you wait, the higher your chances of qualifying for a loan with more favorable terms. Secondly, an application following bankruptcy must be detailed with your current pay slips, bankruptcy discharge papers, 2-year tax returns, and a summary of all your liquid assets, bank details and written explanations. Finally, if you don’t want your finances to be disclosed then you may opt to use the low-doc or no-doc mortgage approach.

The truth is that qualifying for a loan after bankruptcy is a pain in the neck. However, your efforts in improving your credit rating, persistence in rebuilding and patience as you pursue various options will pay off and get you back on track.