3 Quick Steps for Negotiating Mortgage Forbearance

3 Quick Steps for Negotiating Mortgage Forbearance- 150x150Money trouble can occur at any time and can make the repayment of a mortgage loan very difficult. Especially during and after an economic recession, the chances of losing your home are much greater. One way in which a borrower can save himself from losing his home is by making an agreement with his lender, in which the lender agrees to not foreclose on the borrower’s mortgage, if the borrower agrees to start making payments that will bring him up to date on his mortgage repayment.

This agreement is called mortgage forbearance and it’s designed to help borrowers who are going through tough financial times. Borrowers can stop making mortgage payments or even postpone them for a period of time, after which they can catch up and resume making regular monthly payments. Mortgage forbearance also allows the borrower to negotiate some of the default amount with their lender.

Is Mortgage Forbearance the Right Option for You?

Mortgage forbearance is a good option for those who experience temporary financial hardships, such as changes in employment, an expensive divorce, a death in the borrower’s family, having to temporarily pay two mortgages due to a job relocation, military service, or being jailed. If you consider that your financial troubles are only temporary and you will be able to recover shortly, then mortgage forbearance is worth taking into account.

If your financial hardship is of a more permanent nature, your lender may still agree to a mortgage forbearance if they consider that you have enough equity in your home and will be able to refinance with another lending institution. Either way, you will need to go through the necessary steps in order to obtain a mortgage forbearance agreement.

Obtaining Mortgage Forbearance

  1. Analyze your financial situation and call your lender. Carefully analyze not only the unexpected decrease in income or increased expenses, but also every source of monthly income and all expenses. Your lender will want to know all these aspects of your financial situation in detail, so researching them thoroughly will help you and your lender both better determine if your financial crisis is temporary or permanent, and how long will it take you to recover. Your income sources may include salaries, child support, financial aid, pension or veteran’s benefits, home rental income and others. Expenses may include loan and rental payments, food, utilities and many others. Having every source of income and expense laid out in front of you can also help you determine where improvements can be made in order to get out of this situation quicker.
  2. Write a hardship letter. After writing down all your sources of income and expenses, and determining that even after making changes, your expenses are still greater than your income, it is time to document your financial situation to your lending institution through a hardship letter. Lenders have great resources for finding out information about your income and expenses, so it’s recommended to be completely honest and provide all of the necessary information in your hardship letter.
  3. Sign the mortgage forbearance agreement. After receiving your hardship letter, if your lender approves your request for mortgage forbearance, the last step is for you to read the agreement and sign it. The lender agrees to not file for foreclosure for the duration of the agreement, and you agree to catch up on your mortgage payments. Mortgage forbearance will not waive the interest that you must pay, or the late fees.

Mortgage forbearance is a great way of getting back on track with your mortgage repayment and avoid losing your home to foreclosure. But before committing yourself to this agreement, make sure that you fully understand what it involves, and that you will be able to recover from your financial hardship in a short time. Also, make sure that the mortgage forbearance is the right choice for your financial needs and not just a tool that will help postpone the inevitable mortgage default.

 

See How Easily Reinstatement Can Get You Back on Track with Your Mortgage

See How Easily Reinstatement Can Get You Back on Track with Your Mortgage- 150x150One way to get back on track and reverse the foreclosure process on your home is through mortgage reinstatement. Mortgage reinstatement gives borrowers a second chance to keep their home and restore their mortgage loan. Most people believe that when they default on their mortgage and the home goes into foreclosure, there is no option left. Lenders agree to a mortgage reinstatement easier than most borrowers assume, but it will require you to regain control over your financial situation.

Going Into Foreclosure

The housing market received a large hit from the recent economic recession, and millions of Americans have felt it. While the housing market is in recovery, the effects of the recession can still be felt today.

When you stop making mortgage payments or fall behind, the lender will charge you some penalty fees and issue a warning. If you still can’t pay your mortgage, the mortgage goes into default, and you risk losing your home. You will then receive another letter from your lender, which will explain what will happen to your home. The lender will ask you to pay the entire remaining mortgage balance immediately, or they will start the foreclosure process.

The lender files the required documents with your local court, which will rule in their favor if you don’t do anything to remediate the situation. When the court rules in the lender’s favor, your house will go into foreclosure and can be auctioned off and sold.

Reinstating Your Mortgage Loan

Losing your home to foreclosure is the worst case scenario, but fortunately there is something you can do. Regaining control over your budget and being able to get back on track will allow lenders to reinstate your mortgage loan. Foreclosures can take several months to complete, giving you time to work something out and regain the ability to make your mortgage payments.

Getting your home out of foreclosure is going to be expensive, and it all starts with you taking care of all the penalty fees that have been adding up since you stopped making your mortgage payments. Consulting your lender is very important, because your lender will be the most qualified person to tell you what you need to do in order to achieve reinstatement. Your lender will most likely avoid evicting you from your home and do whatever possible to keep you in your mortgage.

Your lender will have the power to modify your mortgage loan to fit your budget and even give you a lower interest rate, which will lead to a lower monthly payment. If you can prove to your lender that you can start making mortgage payments on time each month again, they will most likely work with you to reinstate your mortgage loan.

Reinstating your mortgage loan is an easy way to get you back on track with your mortgage and avoid losing your home, but it all depends on your ability to come up with a budget that will allow you to start paying your mortgage again. Losing a home is not easy and will most likely lead to a lot of stress, or even depression, but as you’ve read in this article, all is not lost when your home goes into foreclosure. Mortgage reinstatement is a viable option for those who are able to get their finances back on track.

How a Graduated Payment Mortgage Can Help You

How a Graduated Payment Mortgage Can Help You- 150x150One of the many loan options that home buyers have today is the graduated payment mortgage (GPM). In a graduated payment mortgage, your mortgage payments start low and increase gradually over a pre-determined period of time. This type of loan is very beneficial for people who can’t afford a large monthly mortgage payment shortly after becoming home owners, but expect to have a better financial situation and afford larger mortgage payments in the future. Most people that his type of loan is geared towards are college/university students or recent graduates who wish to become home owners, but can’t afford to make the often large payments that come with conventional mortgage loans.

How Does a Graduated Payment Mortgage Work?

Because the graduated payment mortgage is designed to help those who can’t afford to make large payments on their mortgage, the loan has an initial period when the interest rate is very low. This is followed by a period of 3 to 5 years when the interest rate increases gradually and remains fixed for the remainder of the loan. The payment increase can be from 2.5 percent to 7.5 percent in the first 5 years, or 2-3 percent over 10 years.

The graduated payment mortgage uses a negative amortization schedule, meaning that at first your monthly mortgage payments will include a smaller interest payment than the one owed on the loan, while the remaining interest will be added to the principal. This makes it easier for you to get approved for this type of mortgage loan, but the downside is that the overall cost of the mortgage loan will be higher.

Graduated payment mortgages are not a favorite type of loan for most lenders as it is considered to have a higher degree of risk, so it is most likely that you will receive a higher interest rate than on a regular fixed -rate mortgage loan.

Benefits of a Graduated Payment Mortgage

Graduated payment mortgages can be very beneficial, depending on your situation and the plans that you have for your future. Here are the advantages that a graduated payment mortgage comes with:

  • The largest benefit that a graduated payment mortgage has is that it allows someone with a lower income to become a home owner. People who expect to see an increase in their income in the next few years after taking on a mortgage shouldn’t have a problem acquiring a GPM. Because of the low initial mortgage payments, you will be able to make monthly payments on your mortgage loan while increasing your income.
  • You have a greater flexibility in choosing the type of home that you purchase. This is also an effect of the low initial payments. By paying less for the first few years, you gain more buying power, allowing you more flexibility on the price.
  • People with lower credit scores and not so perfect credit histories can qualify for this type of loan and become home owners much easier than they would for a regular mortgage loan.

Risks of a Graduated Payment Mortgage

The greatest risk that comes with a graduated payment mortgage is that the borrower doesn’t fully understand how much his or her mortgage payments will increase after the initial period, leading to financial troubles or even losing their home. This can happen due to poor budgeting or unrealistic income growth expectations. The initial payments may seem very attractive, but before you know it, a few years go by and you are required to make much higher payments that may be more difficult for you to budget for.

Graduated payment mortgages can be very advantageous for someone who has properly researched what this type of loan offers. But, as with any loan designed to help the home buyer qualify much easier, you will find that the graduated payment mortgage will end up costing you more than a regular fixed-rate loan. This tradeoff is not necessarily that bad for people who expect an income growth but want to become home owners before this happens.

 

How to Get the Most Out of Mortgage Escrows

How to Get the Most Out of Mortgage Escrows- 150x150Two of your obligations as a home owner are to pay the property taxes on your home and to make sure that the insurance is up to date. Failing to be responsible by not paying your taxes and homeowner insurance on time will have a negative effect on your lender, as they can lose the money that was lent to you if something happens to the property. When you acquire a mortgage loan, you have the option of using escrow, but sometimes this can be mandatory.

What is a Mortgage Escrow?

When taking out a mortgage loan, you have the option of signing up for an escrow account. This account will hold money for some of your bills, like property taxes or homeowner’s insurance. The amount that will be needed to pay these bills will be added to your monthly mortgage payment. Then the money is used by your lender to pay your property taxes and insurance. It is the borrower’s duty to deposit money in the escrow account monthly, with the mortgage payment and, when the time comes to pay your taxes and insurance, the lender will see to it that these payments are made on your behalf.

The escrow service can be optional, but many lenders will require you to pay these home bills through escrow, in order to protect themselves. Having your home insured against hazard and seizure for back taxes, gives peace of mind to lenders, so they can use your home as collateral for the loan.

Usually, your monthly mortgage payment will include the payment for the insurance and property taxes. When closing on the loan, if there are only a few months left until the property taxes are due, you may be required to make a bigger deposit so the taxes can be paid in full. Also, if the taxes and insurance go up, you will be required to make a larger escrow payment, which will of course affect your monthly mortgage payment.

Benefits of Mortgage Escrows

Mortgage escrows do not only benefit lenders. They can also benefit you, the borrower, mostly by making your life easier. While the lender uses mortgage escrow as sort of an insurance in case you default on your loan, such an account will mostly help you by making the paying of your property taxes and insurance more convenient. Here are two important advantages of using mortgage escrow:

  • Convenience. Keeping track of all your home related payments, such as utility bills, taxes, and insurance can be a real hassle, especially if you are not organized, or don’t have the time to deal with this aspect of being a home owner. City, town or county tax payments will probably have to be sent to different places and at different times, increasing the risk of just forgetting to send a payment. Because the escrow includes all your tax and insurance payments into your monthly mortgage payments, you won’t have to deal and keep track of each individual bill. Managing your budget is also a lot easier because you will make smaller payments every month and won’t have to come up with a large amount of money when the taxes or insurance are due.
  • No late fees. Because your lender has the responsibility of paying your property taxes and insurance, you won’t have to pay the late fees if a payment isn’t made on time. The lender will have to cover all of the penalties, as long as you are on time with your monthly mortgage payments. Lenders use sophisticated systems and software to keep track of payments, so it is very unlikely that they will miss or make a late payment. Being late on your insurance payment can have graver consequence than just paying a late fee. The insurer can actually cancel your coverage, so using a mortgage escrow is very advantageous if you are not well organized.

Disadvantages of Mortgage Escrows

Like most services, mortgage escrows come with a couple of disadvantages. While having most of your mortgage related bills bundled into one monthly payment is a great thing that makes your life easier, it can also mean trouble for people whose income fluctuates from month to month. Because you are required to make an equal payment into your escrow account each month, using this service will create difficulties in managing your budget if you are counting on a quarterly or annual bonus, for example, to make your tax and insurance payment.

Another disadvantage is that the money accumulating in your escrow account doesn’t generate any interest like it would if you kept it in a personal savings account. Not using mortgage escrow means that you always have access to your money and can invest it into something that will earn you a higher return.

When buying a home, you should first find out if the lender requires you to use mortgage escrow. Secondly, before deciding if this is the best choice for you, you should carefully weigh in on both the advantages and disadvantages of this type of account. While mortgage escrows can make it more convenient for you to deal with some of your home bills, they also require you to pay a monthly amount that won’t generate any interest over time. Mortgage escrows are a great choice for someone who doesn’t have the time to keep track of all their property bills and doesn’t want to deal with having to make a lot of payments throughout the year.

How Alternative Mortgage Loan Repayment Plans Can Help You

How Alternative Mortgage Loan Repayment Plans Can Help You-150x150For a home owner, the largest monthly bill is probably the mortgage bill. Paying off your mortgage will make this large bill go away, which will change your financial situation significantly. You will be able to spend more on other things, save more, travel, or even quit your job and pursue another career.

Alternative mortgage repayment plans can help you shorten your 30-year mortgage loan and get rid of that monthly payment in only 22 to 24 years, but they are not for everyone. The most commonly used mortgage loan repayment plan is the bi-weekly repayment plans.

The Bi-Weekly Mortgage Repayment Plans

This type of mortgage repayment plan takes advantage of the fact that most people are paid by their employee every two weeks, instead of twice a month. So, with this repayment plan, you are required to make a mortgage payment every other week. Because there are 52 weeks in a year, you will make 26 payments per year. If you compare the number of payments that you will make on a bi-weekly plan to the number of payments that you make on a bi-monthly plan, you will find out that you make 2 extra payments, which will reduce your loan repayment term significantly.

Because bi-monthly plans require you to make 24 payments per year, while bi-weekly plans require you to make 26, those extra 2 payments translate into one extra monthly payment per year. Not only will this help you pay off your mortgage loan quicker, but will also help you build home equity faster and pay less in interest rate.

Paying your mortgage bi-weekly is also advantageous because the payments will coincide with your paycheck schedule, but this type of repayment plan normally comes with some pretty expensive costs in fees and various charges. The money that you will be spending on fees could be spent to pay off your mortgage through a regular repayment plan. Another disadvantage is that the bi-weekly repayment plan is inflexible, meaning that, if your pay schedule changes to once or twice per month, this might interfere with your ability to make your mortgage payments on time.

Is the Bi-Weekly Plan a Good Choice?

The bi-weekly mortgage repayment plan is a great choice for those who don’t have the time, patience or discipline to manage their finances. The lender will provide a repayment plan that will coincide with your bi-weekly paycheck, which will make things more convenient for you.

But you should carefully look at the disadvantages, as well. The money spent on fees could be better spent somewhere else. Also make sure you know what your future plans are. If you plan on moving soon, then the extra payment you will make each year is simply not worth it. Make sure that paying off your mortgage doesn’t interfere with other future plans, like sending your children to college, pursuing a different career, or going into early retirement.

Alternatives to Bi-Weekly Repayment Plans

Not every lender offers bi-weekly mortgage repayment plans, but you can take advantage of most of the same benefits that these plans offer for free.

  • Try to simply ask your lender if they can allow you to pay half your monthly mortgage payment every two weeks. Some lenders will allow you to do that, others will charge you for this, while others will refuse.
  • Pay an extra one-twelfth of your mortgage payment every month. This amount should go towards your principal.
  • If you receive your paycheck every two weeks, start a savings account and deposit half of your mortgage payment in it every other week.

Alternative mortgage loan repayment plans are very convenient and a good way to pay off your mortgage loan earlier, but make sure that they suit your budget and future plans. With a little discipline and research, you can benefit from most of the advantages that these plans offer without having to spend more money.

How to Invest in Real Estate without Much Money

How to Invest in Real Estate without Much Money- 150x150Investing in real estate costs money, but with a little resourcefulness and knowledge, you can buy real estate with little or even no money of your own. Having some quick cash to put down as a down payment is the ideal situation, but there are other options for real estate investors who don’t have much money. You have the traditional option of borrowing money, but we also tell you about some lesser known options that might work best for you. Here are your options when trying to invest without much money:

Options for Investing

1. Traditional Borrowing. Should you find yourself in the position of not having enough money to make a real estate investment, borrowing from a lender is always an option- just make sure that you will be able to pay the money back. Even though lenders have tightened their lending requirements, banks and credit unions are still able to lend you the money that you need for your investment if your credit score is good enough to qualify. You will most likely be asked to make a 10 percent or larger down payment, but there are still lenders that require less. Borrowing money from lenders is the safest and most well-known way of financing a real estate investment.

2. Seller Second. An often used form of financing, “seller second” can help you invest in a property by allowing the seller to provide a second mortgage. Normally, this second mortgage will be enough to cover most or even all of the down payment required. This type of financing allows you to buy an investment property without using much, if any, of your money, and the seller will get a large part of his equity. It is important to be sure that the mortgage loan that you qualify for allows a second mortgage to be added to it.

3. Seller Carry Back. This is a type of “creative financing” and it allows you to invest in a property with little or no money at all. Seller Carry Back is a form of financing in which the seller sells the property to the investor, but receives the money as monthly payments, for as long as 5 years after the sale. The seller must truly own their home, and not owe any money on mortgage loans.

4. Subject-To. This is another type of financing that can help the real estate investor if they don’t have enough funds. The name “subject-to” came from the phrase “subject to existing financing” which means that you are able to buy the home, but with the condition of the existing financing on the home will remain in the owner’s name, while the buyer will make the monthly mortgage payments. This type of financing gives you the advantage of not having to make a down payment because you will be able to refinance in six months and put the new loan in your name. Subject-to financing is only short-term because the seller is not going to be comfortable leaving the mortgage loan in his or her name for a long time.

5. Lease Option. Another popular way of investing in real estate with little money is by doing a lease option, which allows you to rent a home with the possibility of buying it down the road, before the lease term expires. During the period in which you are renting, which is typically two or three years, you will have plenty of time to get financing in order to purchase the home. The home owner will be unable to legally sell the property during the option period.

When investing in real estate without much money, it helps to be creative and resourceful. You shouldn’t let your lack of funds be an excuse to not invest in real estate. The solutions presented in this article show you that you can invest into this industry without having large amounts of money and liquid assets, but you have to make sure that you fully understand that these solutions might not always be a perfect fit for your situation.

How to Make a Down Payment and Mortgage on a New Home When Your Current Home Hasn’t Sold

How to Make a Down Payment and Mortgage When...-150x150Whether you have to relocate because of your job, or you just found your dream home, qualifying for a mortgage loan if your old house is still on the market will be difficult. Most likely, carrying two mortgages is out of the question, so you are looking for ways to buy that new home before selling the old one. This wasn’t an issue in the past, but the financial and housing crisis has made it very hard for the average home buyer to receive a mortgage loan in this situation.

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Before the Mortgage Crisis

Being approved for a new mortgage loan before you sold your old home wasn’t very difficult in the past, before the mortgage crisis. The process was as simple as finding a tenant and getting a rental agreement, and then the new lender would credit you with the rent income to compensate for the mortgage payment.

Companies that advocate strategic default have started to encourage buyers to abandon the old home and mortgage as soon as they found a new home and someone to rent the old one. This way they can avoid the negative effect that a foreclosure would have on finding a new home. This has made it a lot tougher for legitimate home buyers to be able to obtain a new mortgage loan in this situation.

Getting a Mortgage Loan Before Selling Your Old Home

Nowadays, requirements for getting approved for a new loan when you haven’t sold your old house have gotten much stricter. Freddie Mac, Fannie Mae, and the Federal Housing Administration (FHA) have made it a lot tougher to borrow money, in order to protect the lenders from people who would take advantage by walking away from their old home.

Federal Housing Administration (FHA) loans can still be given, even if you haven’t sold your old home yet, but there are a few strict qualifications:

  • New job or job transfer to a different location. Having to relocate because you found a new job or you were transferred from your old one and the commute is impractical from your current home.
  • Divorce. You are currently going through a divorce and are buying a new home.
  • Family size. You family’s size has increased so much that there is no longer enough room in your current home to accommodate all the members of your family.

In addition to that, it is required by the FHA that you pay the mortgage balance down to 75 percent of your home’s appraised value before you will be able to close on the new home.

Fannie Mae and Freddie Mac require that, in case your old home isn’t sold yet, but it is in escrow, you must have a reserve fund equal to the payments for 6 months, including property taxes and insurance, and you must bring a valid purchase contract. In case your old home is converted to a rental, you must provide a lease agreement, a copy of the check for the security deposit, and proof that the check was deposited. In order to qualify to use your rent income for the purchase of your new home you must have over 30 percent equity in your old home.

As you can see, buying a new home when your current home hasn’t sold is possible, but you will have to meet certain strict requirements. The best option would be to plan your move ahead, giving you enough time to sell your old home and also saving you a lot of headaches and hassle.

 

What is Mortgage Amortization?

What is Mortgage Amortization- 150x150Mortgage amortization is the systematic repayment of calculated interest and principal over a previously determined period of time. Basically, it is the process of repaying a mortgage loan through monthly payments. During mortgage amortization, the principal on a mortgage loan declines, as the borrower makes monthly payments. Each time a payment is made, a part of it goes towards reducing the principal, and another part of the payment goes towards paying the interest on the mortgage loan.

The Mortgage Amortization Process

When you take out a mortgage loan, the lender sits down with you to determine your monthly payments over the life of the loan. These payments must be something that you are comfortable with, that you can fit in your budget. These payments must be made on time and, more importantly, in full, including the interest and a portion of the principal, in order for the mortgage to amortize. When the mortgage loan is paid off, your mortgage is fully amortized.

In case the mortgage amortization is not happening, the lender must adjust your monthly payments, so that you are paying against the principal. This might make your monthly mortgage payments increase suddenly, which may cause financial issues.

When mortgage amortization starts, in the early years of paying off a loan, most of the monthly payments that you will make will be applied to the loan’s interest, and only a small percentage will go against the principal. As more of the principal is paid over the years, the interest starts to go down, which will lead to a much faster mortgage amortization in the later years of the loan. As a result, the equity that you will have in your home will also increase faster.

When using an online mortgage calculator, it is harder to figure out how much money you will be paying over the life of the loan. Online mortgage calculators use data such as your down payment amount, the total amount of your loan, and your interest rate to give you an estimate of how much your monthly payment will be, but they won’t help you figure out the total amount that you will be paying by the time your loan will be paid off. High interest rate loans and long mortgage loan terms can result in you paying thousands more on your mortgage, sometimes even double the original loan amount.

How to Calculate a Mortgage Amortization

Both fixed-rate and adjustable-rate mortgages fully amortize at the end of the term, whether it’s a 15-year adjustable rate mortgage or a 30-year fixed rate mortgage, with the condition that monthly payments are made on time.

To calculate a mortgage amortization, you need to have knowledge of a few key factors that are involved in your mortgage loan, such as the periodic interest rate and the loan balance. To find out the first month’s interest rate, you must multiply the loan balance by the interest rate. To find out the principal, you must subtract the interest from the total payment. To find out the interest and the principal for the next month, subtract the previous monthly payment from the mortgage loan balance, then repeat the steps described above.

The Amortization Schedule

The amortization schedule is a table that presents each payment from a mortgage in detail. Amortization schedules are generated by amortization calculators, and they show how much of each monthly payment is the interest and how much is going towards the principal balance. While a payment goes towards paying both the interest and the principal, the exact amount varies, and needs to be calculated with an amortization schedule.

When shopping for a mortgage loan, make sure you fully understand the mortgage loan process, your rights and what is expected of you. Various online mortgage calculators can be of great help, but always be aware of the lender’s rules and conditions. Taking that extra precaution before deciding on a mortgage loan can save you a lot of money and hassle in the long run.

The Foreclosure Process

foreclosure2-150x150Have you experienced financial difficulties to the point of not being able to make payments on your mortgage? These things happen, and while they are less than ideal, there are always solutions. Often times you will be given a grace period to try and sort through your payments. If this doesn’t work, a short-sale will probably be your next option.  Foreclosure will most likely be one of your last options- read on to learn what a foreclosure is and how it works.

What is a Foreclosure?

A foreclosure is the process by which a homeowner’s property rights are forfeited as a result of failing to pay the balance on a mortgage loan. A foreclosure is generally a last resort whose need arises when you are unable to short sell your house or pay the outstanding debt through any other means. Normally, it will be sold through a foreclosure auction. In case a sale isn’t made through the auction, the ownership of the home reverts to the lender.

When taking out a mortgage, the borrower signs a deed of trust that puts a lien on the acquired property. This makes the loan secured, so ownership can legally revert to the lender in case the borrower fails to make payments on the property on time. If a lender does not ask for any collateral, then this becomes an unsecured loan. The lender of an unsecured loan can take you to court in case of default but he cannot forcefully collect any money from you.

Most lenders prefer a secured loan because if you default on the payments, the lender can seize your property and recover the balance owed.

The Foreclosure Process

There are five major steps in the foreclosure process, including:

1.    Notice of missed payments

It is always expected that you make payments on time. However, the lender, in most cases, will allow a 10-day grace period. If you don’t make the payment after these 10 days then the lender will issue you with a notice of a missed payment. This notice asks you to send the payment ASAP to avoid legal action. If you happen to send the payment to the lender after issuance of this notice, then you may only suffer a penalty and negative feedback on your credit report.

2.    Notice of default

If you fail to make a payment for a period of more than 30 days, the lender will issue you with a notice of default. This is a silent way of telling you to pay up or a different action will follow. The notice of default includes information about the property, your name, the amount that you owe the lender, the number of days that have passed since the payment was due and a detailed statement outlining the terms and conditions of the mortgage that you signed with reference to payment timelines. Depending on the terms of the lender, the notice of default may explain that further measures will be taken if an action is not taken by the borrower. While some notices of default are friendly, others can be quite harsh. The most common action after a notice of default is a foreclosure.

3.    Foreclosure notice

A foreclosure notice follows if you don’t respond to the notice of default in a manner that convinces the lender you will pay. The foreclosure notice tells you that the bank is on the verge of initiating foreclosure proceedings. Depending on your location, you have 30-120 days to work a deal with the lender through a short sale. If the borrower pays off the balance on the mortgage then the foreclosure is dismissed. However, foreclosure commences if you fail to make the payments. The notice includes the amount due, the interest rate, the name of the lender and the contact information of the lender’s attorney.

4.    Auction

When the default has not been remedied at the end of the set timeline, the lender will proceed to sell your property through a foreclosure auction or a trustee sale. The auction can take place at the county courthouse, at a convention center, at the office of the trustee or at the scene of the property itself. The property is sold to the highest bidder at the fall of the hammer. Since many people don’t manage to pay cash on the spot, the bank and the highest bidder may enter a deed of lieu for foreclosure. In other cases, the lender may buy the property back.

5.    Post-foreclosure

If the auction is not successful then the ownership of the property reverts back to the lender. This is referred to as real estate owned or bank-owned property. Such properties can be sold either through a local real estate agent or in the open market. Other lenders may prefer to sell their property at liquidation auctions, convention centers, or in auction houses.

A foreclosure is a last-resort option only when all other of the other options have failed. It has the disadvantage of hurting your credit score for a period of at least 7 years and will make it difficult to deal with future mortgage loans. Be sure to exercise all of your options before resorting to a foreclosure. If you do end up with a foreclosure, stay positive as there is always light at the end of a tunnel. Your credit will eventually bounce back and you will be able to learn from the past and move ahead. Here are some other resources that may help you in periods during and after financial issues: Top 6 Mortgage Lenders for Borrowers with Bad Credit, Improve Your FICO Credit Score, and Top 10 Steps for Getting a Post-Bankruptcy Loan.

 

 

Top 10 Ways to Gain Home Equity

Home-Equity-Loan-150x150Home equity enables a homeowner to use their home as collateral to access more credit; in simple terms, it is referred to as a second mortgage. Borrowers often rush into home equity loans because they feel that these are relatively safe, which they certainly can be if you are careful and do your research before settling on one. Having equity is very important for you saving money in the long run and keeping your home marketable at a potentially higher value than what you paid. Read on to learn about its advantages as well as the ways you can  gain home equity.

Advantages of Home Equity

  • Lower interest rates. In case the interest rate for your original mortgage is higher than the prevailing rate, or if it has a persistently increasing adjustable rate, then a lower interest rate will lower your monthly costs while increasing your home equity. If the interest rates have decreased and you took a fixed rate mortgage earlier on, you can opt to refinance for an adjustable rate mortgage.
  • Higher borrowing capacity. A second mortgage will enable you to borrow more money, thus bringing your indebtedness in the home to around 125 percent or even more than the set value. If the home equity loan rates are volatile then you can opt for fixed interest rates even though they will be slightly higher.
  • No interest charge until cash is utilized. If you haven’t used the extra cash then you will not be charged any interest. This cash is a great financial tool which you can decide to use for home improvement or for other needs. If the money is needed immediately, only a small penalty will be applied.

Ways to Gain Home Equity

Home equity enables the homeowner to qualify for a higher loan amount, enjoy tax deductions and easily qualify for another loan even with a bad credit rating. The extra money obtained can be used to help pay for a child’s college education, consolidate other debts or remodel one’s current home. To enjoy these and other privileges, here are some tips and tricks you can apply to obtain home equity:

  1. Reduce the balance on your mortgage. As you consistently pay down all of your mortgage balance, you are clearing a portion of both the interest and the principal. These payments must be made on time. As you keep reducing the mortgage balance on your home, the equity value continues to rise.
  2. Increased home price. Watch for changes to your home’s value based on market factors. For example, if it costs $200,000 and the price increases to $270,000 after five years, then your home equity will have increased by $70,000. On the other hand, this price may also come down any time. Unfortunately you have little to no power over the market’s influence on home values.
  3. Maintain your home well. Taking good care of your home and keeping it updated is paramount to increasing the value of your home and gaining more home equity.
  4. Shorten the mortgage term. If you refinance the mortgage so that you pay the balance on your home for a shorter term, say 15 years instead of the original 30 years, then you will clear the loan balance after a short while. This will mean that after a few years, you will have doubled the equity on your home compared to the initial mortgage repayment plan.
  5. Pay a larger down payment. Before you take out a mortgage loan initially, you can commit a lot of money to the down payment so that you have a lower mortgage balance. For you to obtain more equity on your home, it essentially means that you have to have a lower-to-value ratio on your loan.
  6. Keep up your home’s appearance. When your home stands out from the rest, it makes a difference in your home’s value. Fresh paint, a well-maintained yard and garden, and a clean look will increase your home’s value. The highest return on investment generally comes from kitchen and bathrooms, so be sure these are updated and well-maintained.
  7. Opt for a biweekly payment plan. The best way to build equity on your home is to make payments against your balance as regularly as possible. A biweekly payment means that you will be able to pay about 26 times throughout the year instead of the typical 12 when you pay monthly. This means more commitment to clearance of your mortgage balance—which has affects your equity positively.
  8. Snowball all other savings to the mortgage. If you have other debts you are paying aside from the mortgage, then you can channel any savings you have towards mortgage repayment. If you have completed making payments on something else, like a car loan, channel the same amount you’ve been paying towards repayment of your mortgage.
  9. Channel your budget excesses to the mortgage. If you have a monthly budget for all of your expenses and you’ve saved some $100 or even less then you should commit this amount of money towards repayment of the mortgage.
  10. Make extra income. If you’ve been earning $3,000 a month, try aiming for slightly more, like $3,200- a small increase in your income allotted to your mortgage could end up making a huge difference in the amount you pay over the course of your loan.

Building equity on your home is a strategy which you must lay out and commit yourself to. If you don’t take the time and care to build equity in your home then you risk suffering negative equity by market forces, which can badly water down the value of your home and cause you to owe more on your mortgage than your home is worth.