Consider Other Foreclosure Options If A Refinance Is Unavailable

Many borrowers think that refinancing is a good option when they are working to prevent foreclosure. This is often a good idea, if you have equity in your home and if you get a new loan before your credit is ruined from the defaulted mortgage. One main problem is that most people do not get placed into this category. Most foreclosure victims have extremely poor credit and little equity. This means that the majority of debtors facing the loss of a home and wasting important alternative opportunities attempting to find a foreclosure loan.

A better fix is a loan modification with your current lender. This is when the terms of your existing mortgage are altered 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 reduced and the term of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even reduced 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 process is complete. If you do not get results, you should not have to pay for their services! Do your homework and be careful not to get taken advantage of. New laws are in place to protect borrowers, but criminals will always be there to steal your money if you let them.

When working with your financial institution, you will have to complete a loss mitigation package when requesting your loan modification. This will help them figure out your qualifications. This is where a professional will come in handy, since getting turned down can be irreversible. It is important to submit a package that is complete and can be approved without delay. You may be asked to demonstrate 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 loan, then you need to decide if keeping your house is even the best decision. As I said earlier, you may qualify for a loan 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 house is sold for less than the payoff amount and the financial institution 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 judgment in writing and to make sure they waive their right to pursue this deficiency judgment at a later date. 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 know that you have options and letting the house to go to foreclosure is rarely a good idea. Your credit will be ruined for the next decade and purchasing a new home will be very difficult until you have recovered. Do not be afraid to ask for help or hire a professional to help you over these rough times.