For many homeowners, foreclosure is viewed as a way out from their mortgage payment.  With unemployment at an all time high, and many property values still down, making payments on a loan can be difficult for many people.  However, contrary to a popular belief that a foreclosure can be a fresh start – foreclosures actually affect credit scores negatively, and cause higher interest rates for future loans.

The first thing to do if you are experiencing difficulty making  your payments is to call your lender.  Lenders will often work with you on late payments to help you keep your home.  You should definitely call your lender before the late payments begin, and discuss alternative payment plans when you are first seeing financial trouble.

The Downside of Foreclosures

Foreclosures not only decrease credit scores, thus making future loans difficult to obtain, but also cause a higher mortgage rate for when home buyers do qualify again.  Regardless of your situation, foreclosures impact families negatively in many ways.  If you are at risk for not being able to make your payments, there are a few ways you can prevent a foreclosure from happening to you.  Here are three ways you can avoid foreclosure.

3 Ways You Can Avoid Foreclosure

1. Making Home Affordable. This program is aimed at helping struggling homeowners who have experienced a loss of income and mortgage payments that are beyond what they can afford.  Depending on your situation, you may be able to lower your mortgage rate through this program.

Despite the slowly recovering economy, unemployment is still one of the largest reasons for foreclosures.  This program is targeted at homeowners who have lost their jobs, or have seen a reduction in wages and work hours, to help them keep their homes by making their home more affordable.

Avoid foreclosure for this house

2. Short Sale. If you have given up on your current home, and simply want to get rid of it, but can’t because you owe more than it’s currently worth – a short sale might be a good option.  A short sale is when you sell your home for less than you owe.  For example, if you owe $100,000 on your home, but you can only sell it for $50,000, then you are short another $50,000.  So who accepts that $50,000 loss?

Well, in a short sale situation, you would submit a short sale amount of how much you are listing the house for, and the bank would have to approve the amount provided that you already have a buyer ready.  This whole process can take up to quite a few months, which deters many buyers.  The bank would then agree to take the full amount of the loss, or work out a payment plan with you for you to cover part of the loss over time.

While this differs in each situation, the basic idea is that this is a compromise between the homeowner and lender to sell the house for less than what is owed.  So check with your lender if this option sounds like it could suit your situation.

3. “Deeds in lieu of foreclosure.” If you don’t qualify for a short sale, look into this new type of foreclosure alternative.  The New York Times recently reported that banks like CitiMortgage are now offering the option for homeowners to simply relinquish their property.   The difference between this and a regular foreclosure is that deeds in lieu of foreclosure transactions give the homeowner more time in the house.  Homeowners are not evicted, but are given time (and even relocation budget) to move out within the agreed upon period.

While most deed-in-lieu settlements allow borrowers to be released from all legal obligations to repay the loan, it’s important to always check with your lender for your specific situation.

Despite the large sums of money set aside for programs such as Making Home Affordable, many homeowners are still not taking advantage of these opportunities.  Regardless of which option suits  your situation the best, it’s always important to avoid a foreclosure when possible.  As always, be sure to check with your lender to see which of these options are possible before planning your solution to any mortgage problems.

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