Foreclosure rates are at an all time high in the last few months. Many that have signed up for sub prime mortgages during the housing boom are now facing the higher interest rate, and cannot afford the payments. If you are facing this problem, or discover that you may not be able to make your payments, you do have some options at your disposal.
First of all, you need to know that the lender is not the enemy in this situation. Most lenders will be willing to work with you so that you are able to stay in your home. On average, banks lose one-third of the loan value in foreclosure, so it is in their best interest to help you in your time of need. The bank would much rather that you own your house and not the other way around.
Prepare yourself in contacting your lender
The best advice when you cannot afford a payment or suspect that you may have problems in the near future is to contact the lender as soon as possible. However, you should work out a budget before you contact your lender. Write down everything that may come up in the next month/months and include where you can cut money from your budget. The lender might ask for specifics, and it will be much better if you are prepared. Know that every budget has room to cut. Find those areas and cut back until you can get back on your feet. Be willing to make sacrifices, cut coupons, buy used, and go without entertainment, cable, etc. until you can make ends meet.
Options to ask your lender about
Forbearance: If you are not able to make payments for a short period time due to a short term difficulty, you can ask the lender if you can delay your payments for a short amount of time until you can get payments together.
Repayment: If you have already missed payments, you can ask your lender if it would be possible to spread out the payments that you have missed and add them to future mortgage payments.
Sell your home: If you know that you will not be able to afford your home at all in the next months, it might be time to sell. Lenders will postpone the foreclosure process if your home is up for sale. Remember, they will lose more money if they own it, so they will be willing to work with you.
Extend the length of your mortgage: You may be able to work out a deal where the length of the loan is extended. This will lower your payments to a situation you may be able to better afford.
Reinstatement: If you have missed a payment, but are now able to afford it, promise your lender a catch-up payment.
Hand over your property: If all else fails, offer to hand over your property to the lender. Some lenders will do this in extreme situations and they will forgive your unpaid debt. Although this will damage your credit, it will damage it much less than if you were to foreclose on your mortgage.
Keep in mind that the sooner that you contact your lender with a problem, the more likely they will be willing to work with you. They will try to help you out in your time of need, and, in most situations, will help you to avoid foreclosure.
