Consider Other Foreclosure Options If A Refinance Is Unavailable

By Author: Nick Adama
Total Articles: 197
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Some borrowers believe that refinancing is a great solution when they are trying to avoid foreclosure. This is generally a good idea, if there is equity in your home and if you refinance before your credit is damaged from the defaulted mortgage. The problem is that many homeowners do not land into this category. Most foreclosure victims have extremely bad credit and little equity. This results in the majority of people facing the loss of a home and wasting valuable time trying to find a foreclosure loan.

A better solution is a loan modification with your current lender. This is when the terms of your existing mortgage are modified to produce a lower monthly payment. In reality, it is just like a refinance, but your credit and equity are not a large determining factor, like a refinance. In most cases, the interest rate is reduced and the length 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 bank 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 money up front, or if you do, it is placed into an escrow account until the case 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 homeowners, but criminals will always be ready to steal your money if you let them.

When negotiating with your bank, you will have to complete a bank workout package when attempting your loan modification. This will help them figure out your ability to pay the loan. This is where a professional will come in handy, since getting turned down can be final. It is important to submit a package that is complete and can be approved the first time around. You may be asked to demonstrate proof of income, as you did when you applied for the original loan. Whether or not things have changed with your personal finances is one of the things that the financial institutions will look at.

If the value of your home has dropped and you are "underwater" in your loan, then you need to decide if keeping your home is even the best decision. As I said earlier, you may qualify for a loan modification with a principal reduction, but selling the home may be your best option. When you are underwater in your mortgage, a short sale can be an easy way out. A short sale is when the home is sold for less than the payoff amount and the financial institution forgives the remaining portion.

Short sales can be tricky though, 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 decision in writing and to make sure they waive their right to pursue this deficiency judgment at a later day. We never recommend borrowers 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 borrower, so take advantage and make sure your rights are protected.

Regardless of what you go with, it is important to understand that you have choices and allowing the home to go to foreclosure is rarely a good idea. Your credit will be damaged for the next decade and purchasing a new home will be very difficult unless you have recovered. Do not be afraid to ask for help or hire a professional to help you navigate these rough times.
Nick publishes articles for the My Foreclosure Lender website, which teaches borrowers how to save their properties from foreclosure. His site describes numerous ways to prevent losing a home, including mortgage modification and cash for keys. Visit today to pick up a free e-book on how foreclosure works and how to stop it: http://www.foreclosurefish.net/