If you are having trouble keeping up with your mortgage payments, you're not alone. If you are three months or more behind in your mortgage payments, then you are one in an estimated 3 million or more who are currently in one state or another of default.
In this situation, however, what are your options for avoiding foreclosure?
Regardless of where you are right now with your mortgage payments, the most important thing you can do is to contact your lender when you first realize you are having problems. Never ignore communication from your loan servicer.
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It is to the lender's advantage to work out a solution with you if at all possible. Discuss options with your lender. Initially, most lenders will not discuss options available until you complete and submit to them a workout packet. A workout packet includes a detailed letter as to how you arrived at your situation, an income and expense statement and other information specified by your lender.
Some workable options may be a loan modification, which modifies the payment and even sometimes lowers the interest rate of your existing mortgage. The intent is to make it more affordable for you to make the payments. Typically, the result is a mortgage payment at 31 percent or below your current total household income.
In the meantime, respond to all communication from your lender. Become familiar with your rights. Read your loan agreement and find out what steps are built into your home loan regarding default.
Research your state's foreclosure laws and the relative timeframes, since laws differ from state-to-state. Information should be available online; however, you may also want to contact your State Government Housing office directly for details. The Department of Housing and Urban Development (HUD) is a great point-of-contact for information.
HUD housing counseling agents are on-hand to assist in this type of situation. You may contact one by calling 1-800-569-4287. You may also access resources in your state via the HUD website.
Once you understand the timeframes and obtain all the information you can regarding your situation, you may want to find a good bankruptcy attorney just in case your lender does not provide you with a feasible option, or does not provide you with a feasible option in time to avoid foreclosure.
In the midst of all your activity to prevent foreclosure, a primary consideration should be to modify your spending. It's amazing how much you can trim when looking at alternatives to entertainment and other purchases.
In the case of job loss or other reasons for reduced income, families often find it difficult to stop the prior cycle of spending. Even if a previous family budget was kept, it's critical to restructure the budget according to the new net income and eliminate any unnecessary spending in order to modify spending habits.
If brands were important before, ditch the brand name and opt for generic or less expensive brands. Hold off on buying clothing and accessories. If you just have to purchase such items, make sure you build a minimal amount into your monthly budget for items that can easily blend into your existing wardrobe. Look for alternative entertainment, like $1.00 video rentals at a local Redbox.
There actually could be a silver lining to this cloud in working with your family members to reduce spending. With input from all family members, you might be surprised at the savings. In addition, if you opt for a weekly eat-in family theme night, instead of that expensive dinner and movie you were used to, a greater sense of bonding might be the result. Also, ask everyone the question, "Are there assets we have that could be sold?" Again, input from all family members could result in some unexpected revenue.
Another benefit found serendipitously through a layoff is that some who have lost jobs have found other opportunities they never would have looked for had they never been laid off.
Finally, stay away from foreclosure rescue companies and schemes. You don't need to spend money that could be used toward your mortgage in trying to save it. Note that all avenues necessary to avoid foreclosure cost you nothing if you access the appropriate resources, unless you have to go into bankruptcy to save it.
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