- Bring your payments current AKA "reinstatement"...You pay your lender the full amount due, including all back payments, fines and fees. Although this is often difficult, you may get a new job, get assistance from family, cash from other assets, etc. Homeowners can reinstate a mortgage up to the day before a final foreclosure sale, and it doesn't require lender approval.
- Rent the property...If your mortgage payment is low enough that a rental payment covers your monthly expenses. However, many expenses, (taxes, insurance, repairs, HOA dues) and landlord responsibilities are a factor, and rental income may not cover the full cost of ownership and maintenance.
- Loan modification...Your lender may change the terms of your original loan to absorb any delinquent payments and make the payments more affordable. Your loan could be permanently changed by adding missed payments to the back end of the existing loan balance, lowering the interest rate, making an adjustable rate fixed, or extending the number of years you have to repay your loan. Homeowners must qualify for the new payment, this option requires full documentation and the lender has strict guidelines regarding debt-to-income ratios.
- Refinance...If you have sufficient equity in your home and your credit is still in good standing, you may be able to refinance and achieve lower payments.
- Forebearance (payment plan)...A forbearance agreement means you pay only a portion of your regular payment -- or no payment at all -- for a specific period of time based upon your current financial situation as documented to your lender. This temporary solution provides time to save money, pay off other bills, find employment or additional employment, or recover from injury or illness. At the end of the forbearance period, you begin making regular payments as well as an additional amount to pay off the past-due amount. Active duty military service members may be eligible for special mortgage relief assistance.
- Bankruptcy...In some situations and in some states bankruptcy stalls the foreclosure process and may allow you to live in your home and repay your lender under different terms. If a homeowner has significant non-mortgage debts that prohibit you from making your mortgage payment -- and a personal bankruptcy will eliminate these debts -- bankruptcy may be an option.
If one of the above does not apply, you may have the following foreclosure options:
- Deed-in-lieu of foreclosure (also, "friendly foreclosure")...A deed-in-lieu of foreclosure means you return the deed (and house) to the bank instead of facing foreclosure, and walk away. Lender approval is required. If you have more than one mortgage this is most likely not an option for you. Some lenders want to see the house on the market for at least 3 months before they consider accepting a deed in lieu. By voluntarily transferring the deed, you can save your lender tens-of-thousands of dollars in foreclosure proceedings. At this time, Fannie Mae has reduced the mandatory waiting period to qualify for another mortgage to a minimum of 4 years after a deed-in-lieu of foreclosure, which is lower than the required 5-7 years following a traditional foreclosure. Although a deed-in-lieu may have less impact than an actual foreclosure on your ability to establish homeownership in the future, if you are going to cooperate with your lender and take a proactive approach, a short sale is generally the better option.
- Short sale...If you owe more on your home than the home is worth, and don't want to or can't qualify for any of the options mentioned above, a short sale is generally your best option. A short sale allows you to avoid foreclosure and minimize the damage to your credit score. You may avoid a deficiency judgment if the negotiations result in your lender forgiving your mortgage debt in its entirety according to the terms outlined in The Mortgage Debt Relief Act of 2007. Also a short sale keeps a foreclosure off your credit record. Fannie Mae has reduced the mandatory waiting period to purchase another home after a short sale to 2 years. A short sale is a negotiated resolution to the disposition of an upside-down property...this is ALWAYS better than a lender-imposed resolution.
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