Consider Other Foreclosure Options if a Refinance is Unavailable

Some homeowners think that refinancing is a worthwhile option when they are attempting to stop foreclosure. This is generally a good 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 most borrowers do not get placed into this category. Most foreclosure victims have extremely poor credit and little equity. This means that the majority of people facing foreclosure and wasting valuable time trying to apply for a foreclosure loan.

A better answer is a mortgage modification with your current lender. This is when the terms of your existing mortgage are modified to produce a lower monthly payment. In reality, 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 lowered and the length of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even lowered 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 bargainer to work on your behalf. When you hire a professional, make sure you do not pay cash 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 homeowners, 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 ascertain your qualifications. This is where a professional will come in handy, since getting rejected can be irreversible. It is important to submit a package that is thorough and can be approved without delay. You may be asked to provide proof of income, as you did when you obtained the original loan. Whether or not things have changed with your personal finances is one of the things that the lenders will look at.

If the value of your home has decreased and you are "underwater" in your mortgage, then you need to decide if keeping your home 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 bet. When you are underwater in your mortgage, a short sale can be an easy way out. A short sale is when the home is sold for less than the total amount and the bank forgives the difference.

Short sales can be tricky anyway, because your lender will not easily agree to this solution and may pursue a deficiency judgment after the home sells. It is very important to get your decision in writing and to make sure they waive their right to pursue this deficiency judgment at a later time. We never recommend owners 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 borrower, so take advantage and make sure your rights are protected.

Regardless of what you decide, it is important to know that you have options and letting the house to go to foreclosure is rarely the best idea. Your credit will be hurt for the next decade and buying a new home will be virtually impossible until you have recuperated. Do not be afraid to request help or seek a professional to help you over these rough times.