Preventing a Foreclosure When You Are Behind on Mortgage Payments

Facing foreclosure is not something any home owner wants to experience. If you are 3 months, or more, behind on your mortgage payments the bank my take action. You will be labeled as defaulting on your mortgage. The bank can take possession of the property and sell it to recover the capital you owe. This would be the worst case scenario.

Foreclosure can be avoided by taking appropriate action. But there is no need to overreact and take the wrong actions that could cause you to loose more money. Like panicking to sell at any price to get out of the situation.

The following guidelines may assist you in preventing a foreclosure without causing too much financial hardships.

Advise your Lender of the Situation

After you miss a payment, the bank will know there is a problem. If you wait long enough, after missing payments, the bank will be looking to contact you about the problem and what can be done to rectify it. Don't wait for them to contact you. Notify them immediately.

Let your lender know about your situation. If you can make the payment later then set a date with them for when payment can be made.

If you are unsure what you can, or should, do then ask them for advice. Depending on your situation they may be able to suggest a few options. The bank does not want you to foreclose on the property. It cost them money to do so and they would rather avoid it. They are often open to working out a favorable situation for both parties.

Get You Personal Finances in Order

Budget you spending. If you are not currently using a budget to monitor and control your spending then you should definitely be doing so. A budget will allow you to see where your money is going and where you can stop any unnecessary spending. If you are already using a budget then you should examine it carefully to fine tune your finances.

Take note of all you regular recurring bills and living expenses. Look for ways to reduce your spending in certain areas. This may be enough to cover the shortfall on your mortgage payments. But it may mean you are living in a much tighter financial situation.

If needed, liquidate unneeded assets to free up some cash. Focus on things that are costing you money to own. Selling a second vehicle, especially a recreational vehicle (RV or boat) will free up some cash immediately plus reduce further unnecessary expenses. Downsize your primary vehicle to a smaller, less expensive one.

Prioritize your regular payments. Late payments on any sort of loan may negatively affect your credit rating, but some have more effect than others. Missed mortgage payments will often do the most damage to your credit. Holding off on a car payment may be better than missing the mortgage payment.

Look for other sources of income. If your financial problems stem form the loss of a job then you should find employment as soon as possible. Even if it means temporarily taking a lower paying position. A non-working spouse could be bringing in a secondary source of income.

Take on short term debt to pay your mortgage. If you know your situation is temporary ,and your finances will improve in a short period of time, you could consider borrowing money from a friend, or family. Or make use of other sources of credit such as credit cards or a personal line of credit. These options are only recommended if you are certain you can pay back these debts in a very reasonable amount of time. Otherwise you are worsening the situation.

Restructure Your Mortgage Payments

If changes to your personal budget are not enough to cover your shortfall then you nay need to restructure your mortgage payments. This option may be presented to you when you notify the bank about your situation.

Depending on how much you owe and how long is left on the term of the mortgage, the bank may extend the term over a longer period to reduce your payments. Switching to bi-weekly payments instead of monthly will reduce the overall monthly payment, though not much. In some case they may allow interest only payments for a period of time. This can temporarily reduce your payments, though the remainder of the payment will need to be paid at some time. A payment schedule can be agreed to where this i paid off over a few months.

Remember, the bank wants to avoid a foreclosure as much as you do. They can be flexible to find a solution. Be sure to get any agreed changes to your payments in writing to avoid any confusion and problems later.

Refinance your Property

If you have equity in the real estate, an equity loan, or a second mortgage may significantly reduce your payments. Ask your lender about refinancing. Also inquire with other lenders. If you do refinance you want to find the best rate you can to minimize interest costs and get the lowest payment possible.

Sell the Property Before Foreclosure

If all the above mentioned options are not enough to get out of the financial difficulties causing late mortgage payments you should consider selling before being forced to. If the bank forces a foreclosure sale you stand to loose many thousands of dollars and practically destroy your credit.

Should you need to sell, make the decision to do so before you are pressed to sell. This way you can market the home at its full market value. If you are in a rush to sell you may need to sell at a lower price. Considering the financial problems already present, it is best to try to receive as much money for the property as possible.

A foreclosure auction sale initiated by the bank will force a sale at far below market value. Any equity you may hold in the property will be lost. Selling pre-foreclosure will allow you to retain as much equity as possible and keep the black mark of a foreclosure off your credit history.

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