A Short Sale Isn’t the End of The Road; Things to Look Forward To

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When the housing bubble burst in 2008, it was a very dark period for many Americans with almost ten million losing their homes to foreclosure or short sale. With foreclosures on the increase for the first time in almost five years, it’s becoming a real possibility for many people again, but it isn’t as bad as it may first seem. Explore what happens and what you can look forward to in terms of a short sale in the guide that follows.

Firstly, What is a Short Sale?

A short sale is when you sell your home for less than the mortgage you owe on it. This means that the lender doesn’t get all the money that they are owed. A short sale is permitted in several conditions:

  • You are in negative equity, which means that you owe more than the home is currently valued at
  • The home’s value has decreased substantially
  • The lender has given permission

Your lender writes off the difference between the amount you owe on the property and how much the home is worth.

Things to Look Forward To

  1. Your Credit Score Will Recover Quickly

If you keep paying your mortgage until the short sale, then you will be in pretty good standing afterward. Usually, it can take about two years for a lender to accept your application for a mortgage, but some people have bought homes within six months. Your credit score will dip initially, probably by around 150 points, and although that may seem a lot, it’s much less than you would lose with a foreclosure. Think of it as a minor drawback, rather than the end of the world. Plenty of people recover from short sales. A new trend of boomerang buyers (people who lost their homes to short sales between 2007 – 2013) is projected to make up about 17.5% of the housing market.

  1. Help Available

Even when you’re down and out, there is help available. The FHA (Federal Housing Administration) has provisions for those who had to make a short sale because they lost their job. There is a Back to Work loan program which can help you reapply for a home loan in only 12 months after selling your home in a short sale, as long as you can prove that you lost 20% of your earnings. There are lenders out there who are sympathetic to those who made short sales and are happy to consider individual cases. Don’t simply give up!

  1. Becoming Cash Smart

Most people have never been taught about property law or buying a house. They simply learn as they go. It is built into the American dream that you grow up, get a job, buy a house, start a family. However, at school or college, they don’t teach us the basics of how to deal with these. We tend to learn as you go, and of course, mistakes happen.

If you have to sell your home in a short sale, when it comes to buying again, you will know better what you need to do. Anyone who is buying for the second time is better equipped. They know what to expect and the mountains of paperwork required. They also know what went right or wrong last time. If you have lost your home in a short sale, you will probably qualify for some housing counseling, which is invaluable to teach you what you need to know about buying a house.

Five of the most valuable things you learn when you’ve gone through a short sale are:

  • Not to overextend yourself next time around
  • Be more careful about what you buy
  • Planning to stay in a property for longer, at least five to seven years
  • Put a higher down payment on a property, so your monthly payments are more manageable
  • Be prepared for unexpected circumstances, such as death, dips in the property market, job loss etc.

  1. Avoiding Foreclosure

You’re probably wondering, “How is this something to look forward to?” but talk to anyone who has been through a foreclosure and you’ll understand why. Firstly, foreclosure is painful for all parties involved. A foreclosure stays on your record for ten years and it’s usually at least seven years before you can even consider buying another property.

You won’t be able to borrow money from normal lenders, so it could push you further into money problems. It affects your credit rating massively. Also, even with your home gone, you could be held liable for the money owed to the bank. The bank can obtain a deficiency judgment from the court for the monies owed, and you will then need to pay this also. Avoiding foreclosure could be the best thing that you do for your credit.

  1. Going Mortgage-Free

When your short sale goes through, it gives you the opportunity to move to a new area, to try out somewhere you may have thought about or to move near a good school for your kids. When renting you don’t have the same responsibilities as a homeowner and after being through a stressful year or two with money, this can be really refreshing. Although you’ll still have a monthly payment, it’s not as stressful as a mortgage. You aren’t locked into this loan and you have much more flexibility. If you want to move in less than a year, you can. People get caught up in the idea of owning a home, but after you have got rid of one mortgage, you may find that renting is a dream for you.

Peace of Mind

If you weigh it up, selling your home in a short sale could open the door to a different life to the one you have now. You’ll feel so much relief from being free of the shackles of a mortgage that you may never go back to having one. However, if you do want one, then you’ll be eligible for one far faster than if you go through a foreclosure. So, try not to think of a short sale as the end of the road, merely a fork that leads you onto a new road of your choice, full of possibility.

how to get out of foreclosure

How to Get Out of Foreclosure When You’re Short on Cash

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Fewer people are foreclosing on their homes these days. In fact, foreclosure activity dropped to a 12-year low in 2017.

At the same time, though, there are still hundreds of thousands of foreclosures occurring each year.

Are you currently facing foreclosure? Are you unsure of how to avoid it without spending a lot of money you don’t have?

If you’ve been wondering how to get out of foreclosure, keep reading. Some effective strategies you can use even when you’re short on cash are explained below.

Look for Ways to Raise Extra Funds

If you’re not too far behind on your payments, you might be able to scrape together the funds to avoid foreclosure by implementing some of these tips:

Cut Expenses

Start by eliminating all “extras” from your budget. This includes cable TV, a gym membership, your expensive cell phone plan, your second car, etc. Anything that isn’t absolutely necessary should go.

Sell Your Belongings

Sell anything of value that you don’t absolutely need. This includes electronics, a second car, musical instruments, collectibles, jewelry, etc. Sell these items in a yard sale, on Craiglist, or at a local pawn shop.

Look for a Side Job

You might be able to earn extra money by picking up a side job with a company like Lyft or Uber. You can also look into babysitting, dog walking, or delivering food for GrubHub. There are tons of gigs out there you can use to earn extra cash.

Withdraw from Your Retirement

Finally, you may also want to consider withdrawing money from your retirement. If you have a Roth IRA, you can do this without incurring any penalties or taxes.

If you have a regular IRA or 401(k), though, keep in mind you’ll have to pay taxes and early withdrawal penalties on the money you take out.

The money can be worth it, though, if it allows you to get caught up on your house payments and avoid foreclosure.

Consider Refinancing

If, after taking the above steps, you’re still short on the money you need to avoid foreclosure, consider refinancing your mortgage.

By refinancing your home loan, you’ll experience very little impact on your credit score. You’ll also get a more affordable loan with lower monthly payments.

Of course, you also get to continue living in your home, which is almost always the end goal when you’re facing foreclosure.

You can talk to your lender about refinancing your home loan.

There are also several programs that help to simplify the process, including the Federal Housing Authority and the Home Affordable Refinance Program.

Talk to Your Lender

If refinancing isn’t an option for you, there are several other plans you can use to improve your financial situation and avoid foreclosure, including the following:

Loan Modification

With this approach, your lender modifies aspects of your loan (interest rate, type of interest, term length, etc.)

Forbearance

A lender might agree to reduce or suspend your mortgage payment for a certain period of time while you get back on your feet (find a new job, go back to work after being on disability leave, etc.).

Look into a Short Sale

If you can’t figure out a way to stay in your home, you may want to consider a short sale.

A short sale involves selling your home for less than the amount that you have left on your mortgage. The lender takes the money from the sale and you’re able to walk away and start over again.

In some cases, you can’t get as much money as you need from your house. Lenders will often accept whatever you can get, though. Even though they lose some money, they get to avoid the expensive and time-consuming foreclosure process.

How to Get Out of Foreclosure with a Short Sale

Are you interested in using a short sale to get out of foreclosure? If so, you’ll have to follow these steps:

Understand the Consequences

First of all, it’s important to understand the consequences of a short sale. For example, a short sale will negatively impact your credit score (although, not as much as a foreclosure will).

There may also be tax consequences. The IRS typically considers canceled debt from a short sale to be taxable income.

For example, if you sold your home for $150,000 and owed your lender $200,000, there would be a deficiency of $50,000. If the lender forgives that $50,000 debt, they will issue a tax form known as a 1099-C. This money is then considered taxable income to you.

Contact Your Lender

If you’re aware of and accept the consequences of a shorts ale, start by contacting the loss mitigation department of your bank.

They’ll have you fill out an application and some other paperwork. You’ll also have to provide documents detailing your financial situation.

List Your Home

If your lender decides that a short sale is the best option for you, you’ll have to put your home up for sale. Once you get an offer, you’ll take it to the lender in order to have your short sale approved.

It can take quite a while for a short sale to be complete, especially since you have to go back and forth to the bank after getting an offer. It may be a time-consuming process, but most people find it worth it to avoid foreclosure.

Read the Fine Print

Finally, be sure to read through all the paperwork thoroughly before agreeing to anything.

Lenders don’t always accept the proceeds from your short sale as a full payment of your home loan. Make sure that your lender will accept to this before you start the short sale process. That way, you won’t be in for any unpleasant surprises later on.

Want to Learn More about Short Sales?

Do you want to know more about how to get out of foreclosure with a short sale? Or, do you just want to learn more about short sales in general?

Either way, we have resources for you.

Check out the short sale archives of our blog today to learn everything you need to know about the short sale process, including information on how to use a short sale to avoid foreclosure.

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How Mortgage Restructuring Can Save You Thousands of Dollars

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The value of outstanding mortgage debt in the U.S. in 2017 was nearly $15 trillion. That’s more than $45,000 for every man, woman, and child in the country.

Your home is the single most expensive item you will ever buy in your life. And most of us have to pay off our mortgage debt over decades.

But circumstances can often change, meaning that those monthly mortgage repayments are can become a serious burden. One way to try to alleviate some of that burden is by restructuring your mortgage.

Read on as we take a look at how you can save serious money by mortgage restructuring.

Restructure Your Payments

There are two ways to do this, depending on whether you want to save money in the long or short term.

If your lender will allow it, you can restructure your mortgage so that it is over a longer period. This means that your monthly repayments will reduce, saving you money in the short term. But the downside is that the total you pay overall will increase, as you are paying interest over a longer period of time.

If you want to save money in the long term, then you can restructure your payments so that you’re overpaying your monthly payment. In this way, you will pay your mortgage off sooner and be paying interest for a shorter period of time. The savings can easily be several thousand dollars.

Recast Your Mortgage

Another way to pay your mortgage off more quickly is by a process known as recasting.

This involves paying off a lump sum of your mortgage, usually $5,000 or more. Your mortgage is then recalculated, which means that your monthly payments will reduce. In addition, you will also make huge savings overall as the interest you will accrue will be significantly less than your previous mortgage.

There is a fee incurred for recasting your mortgage which usually amounts to a few hundred dollars. This is more than outweighed by the savings you will make. But recasting your mortgage does require you to have a large sum of money available.

Refinance Your Mortgage

If you want to change things up completely, you could consider refinancing.

Finding a different mortgage at a preferential rate can save you both on your monthly payments and the overall amount of interest you will pay. But this needs to be weighed up against the fees you may incur for leaving your current mortgage early. These can often be a significant percentage of your current loan amount.

You will also need to be approved for your new mortgage, which has become more challenging since the financial crisis.

Defer Your Payments

If you are really struggling to meet your monthly mortgage repayments currently, but believe you will be able to make up the shortfall in the future, then it might be worth trying to defer your payments.

Realistically, few mortgage providers will agree to this unless there is a clear reason why you need the deferment. You would need evidence that you will be able to return to the normal schedule within a reasonable timeframe and make up the shortfall you will have accrued.

The likelihood is that in most cases you are unlikely to be successful. But it may be possible as it means that the lender will still end up receiving all the money they are owed, which is not always the case in foreclosure sales.

Pay Bi-Weekly

This is a really simple trick that sounds like it shouldn’t work but can end up saving you tens of thousands of dollars.

Instead of monthly mortgage repayments, you pay half the amount every two weeks. At first glance, this seems like you will just end up paying the same amount over the course of the year. But since every month but February is actually longer than four weeks, you actually end up paying off more.

52 weeks of bi-weekly payments equate to 13 monthly payments instead of 12. And whilst this doesn’t sound like much, the savings can be huge.

For example, for a $300,000 mortgage at 5% over 30 years, your monthly repayments would be $1,610.46, and the total you would repay over the whole term would be $579,767.35. If you paid $805.23 bi-weekly, you would finish paying off your loan nearly 5 years sooner. Your total repayment would be $528,275.45, which is a saving of an enormous $51,491.90.

Not all lenders allow bi-weekly payments, however, so you will need to discuss this option with your mortgage provider.

Extend the Term

If your current repayments are becoming difficult to manage, one option is to extend the length of your mortgage.

By paying off your mortgage over a longer period, it means that your monthly payments will be reduced, making them easier to manage. But the downside of this is that you will be paying interest over a longer period, so the total that you end up paying will increase.

The length of time that you can extend your mortgage will also depend on a number of factors. These include your age and how many more years you are likely to be working.

Switch to Interest Only

Another way to reduce the size of your monthly repayments is to switch to an interest-only mortgage.

Under this type of agreement, you are only paying down the interest each month, which makes your repayments far more easy to manage. There is a serious concern with this type of mortgage, however. Since you are paying down none of the principal amounts that you borrowed, you still owe the full amount of your loan.  This will still have to be paid off at some point.

Unless you are expecting a sudden windfall, you will need to start saving to pay off the loan at some point in the future.

What Are Your Options Outside of Mortgage Restructuring?

If mortgage restructuring isn’t going to work for you then there are other options.

If the repayments on your home are becoming burdensome, one option is to consider a short sale. Our site is packed with useful information on everything you need to know about short sales, whether you’re selling or looking to invest.

We also have plenty of useful articles on real estate financing too. Feel free to take a look around.

Foreclosure vs Short Sale: What’s the Difference?

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Most experts agree that real estate is one of the safest investments you can make.

Not only can you earn passive income from rental properties, but it’s also a safe way to make a long-term investment. But, buying real estate takes more than researching CMAs.

The type of property you buy is important, too. For instance, many investors prefer buying short sale or foreclosed homes.

Knowing the difference between foreclosure vs short sale is important if you’re getting into the real estate game. If you haven’t considered these types of properties yet, we’re here to help.

In this guide, we discuss the differences so you can make the most informed decision for your financial future.

What You Already Know

More than 65% of American homeowners have a mortgage. This means that they put some cash down on their home and financed the rest. The most common mortgage terms are for 15 or 30 years.

This means it will take the homeowner 15 or 30 years to own their home free and clear. Now, there are exceptions, like paying the loan off early or selling it before then. Some people refinance their loans, which can alter the maturity date.

Every month a homeowner pays money towards the interest, principal, and in many cases, into an escrow account. But there are times when the owner runs into an emergency or falls into extreme financial peril.

If this happens and the homeowner falls behind on their mortgage payments, they have some options. If none of the options help or they don’t qualify, the bank can start the foreclosure process.

What Is a Foreclosure?

A foreclosure is one of the least favorable options for a homeowner or borrower. This is when, after three to six months of missed payments, the lender steps in to take possession of the home.

This is a legal process and can take a long time.

The lender files a Notice of Default with the court. This is the pre-foreclosure period which can last up to 120 days. The borrower gets notified of the lender’s intention to take possession of the property.

The lender will have a set amount that the borrower can pay to keep the property. Usually, this is back payments, late payments, and added filing and administrative fees. If the borrower can pay the amount, they’re in the clear and can keep their home.

But, if they can’t amend the issue, the lender steps in and takes possession. From there, they sell the house at auction to recoup some of their money.

What Is a Short Sale?

During the pre-foreclosure period, borrowers can try to sell the property. This becomes a short sale home.

Don’t let the name fool you, though. It is not a quick process. The term “short sale” refers to the lender getting “shorted” on what the borrower owes.

In other words, say a mortgage balance is $200,000, but the home is only worth $150,000. In a short sale, the bank would have to agree to accept the $150,000.

Differences Between Foreclosure vs Short Sale

In a foreclosure, the lender recoups their money at an auction. Often, they don’t get the full value of the mortgage.

In a short sale, they don’t either, but there are significant benefits to the bank for agreeing to it.

There’s a lot of paperwork involved in a short sale. The first step is to prove the short sale makes sense for the lender. If it’s approved, the new buyer has to get financing from a third-party lender or pay cash.

If it’s getting financed, the third-party lender has to agree to the exact amount the original bank agreed to in the short sale. That means, there isn’t room for negotiating price.

Then, there are mounds of more paperwork. It can also be a lengthy process. Some short sales can take up to a year to process.

In both cases, the original borrower will lose their home. But in a short sale, it’s a softer blow to their credit score. In a foreclosure, your credit gets hit harder, and you will have financial repercussions, but it’s often more convenient.

But About Buying These Kinds of Properties?

If you’re looking to invest in these kinds of properties, the first thing you need to do is reach out to a professional. There are lenders, real estate agents, and lawyers that specialize in short sales.

You already know it’s an arduous process. Hiring professionals that understand the ins and outs of laws and guidelines will make the transaction go smoother.

Now, you also know that in a short sale, you have to get approved for financing first. You can’t find the home, negotiate a price, then find a lender based on the final sales price.

But the good news is that you can finance a short sale home pretty easily. With a foreclosure, it can be more difficult.

When you’re considering buying a foreclosure vs short sale, there is another thing to consider: The state of the property.

With short sale homes, the original borrower/homeowner has taken some steps to salvage their credit and financial future. At least, they do this as much as they can.

In a foreclosed property, the borrower has, in essence, just let it go. Often, these homes are in disarray and need a lot of work.

You may come across a short sale that is also distressed. But in most cases, the owner/borrower lives in the home until the sale goes through. This reduces the likelihood that it’s in complete disrepair.

You may want to do some updating or renovations, but for the most part, the home is in working order.

If you buy a foreclosed home, prepare for the worst. You’ll pay less than if the home is a short sale but you’ll make that up in remodels and renovations. Sometimes, you can spend thousands just to get the plumbing to work again.

Foreclosure vs Short Sale: Knowledge Is Key

When you’re considering you’re foreclosure vs short sale options, the key is knowing what you’re getting into.

Research all your options, know the timeframe involved in the process, and hire professionals.

If you’re still not sure if investing in these kinds of properties is best for you, check out our blog. We have more helpful tips on investing in short sale properties.

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A Strategic Guide on How to Stop Foreclosure

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On average, one out of every 200 homes faces foreclosure. And every three months, 250,000 new families enter into the foreclosure process.

Don’t become a part of the statistic. A foreclosure isn’t only the loss of your home. It also affects your financial future. If you’re going through a foreclosure it can seem like you have no options, but luckily that’s not always the case.

Read below to discover eight strategies to stop foreclosure.

Talk With Your Lender

Talking with your lender or bank is the first step to stop foreclosure.

Most people think their lender doesn’t care if you lose your house or not. But this isn’t the truth. On average, lenders lose around $50,000 on each foreclosure. They are willing to work with you, but you need to start the communication.

Reach out and let them know you are struggling to make your monthly payments. Together, you can come up with a viable payment plan to get you back on track with your mortgage payments.

Try A Short Sale

A short sale is an often overlooked solution to stop foreclosure on your home.

Is your home worth less than you owe on your mortgage? A short sale allows you to sell your home at an amount below the mortgage balance. All you need is a qualified offer from a buyer.

To qualify for a short sale, you must meet the following requirements:

  • Unable to sell your home at a price that covers your remaining mortgage balance.
  • Your mortgage is near or at the default stage.
  • Unable to refinance your existing mortgage.
  • Submit a letter of hardship explaining why you can’t make mortgage payments.
  • You have no assets that could help with your situation, such as other real estates.

When your short sale is complete, your lender forgives the remaining mortgage balance.

Look For Refinance Options

Look at refinancing your current loan if you are facing foreclosure.

By refinancing, you will replace your current mortgage with a new mortgage. The new mortgage will come with a new lower interest rate. This could lead to a lower monthly payment.

To qualify for refinancing, lenders will look at the following:

  • A good credit score.
  • Equity in your home.
  • A good debt to income ratio. You should aim for your mortgage payment to be less than 28 percent of your income.

Refinancing works best if you look for options as soon as you have trouble making payments. A lender will be less likely to offer a new mortgage if they see a long history of missed payments.

Enter A Forbearance Agreement

A forbearance agreement is a temporary arrangement to delay foreclosure.

These are often granted if you are experiencing short-term financial difficulty. Some things that could qualify for a forbearance agreement include:

  • Sudden loss of a job.
  • A temporary illness that made it difficult to work.
  • Recovering from an injury.

The granting of a forbearance agreement and its terms depend on your lender. Often, the agreement will reduce or suspend your mortgage payments. You and your lender will agree upon a set amount of time for the reduction or suspension.

During this time, the lender agrees not to start the foreclosure process. At the end of the agreement, you return to paying your full mortgage payments. You are also responsible for paying any missed payments, interest, or taxes.

Bridge Your Income Gap

If you find yourself facing foreclosure, it’s time to increase your income. Bridging your income gap is challenging, but it helps you afford monthly payments.

Consider accepting a new job, or even a second job. Many people use side hustles to bring in extra income to their families. Wait tables on the weekends or drive for a ride-sharing company. If you’re determined to make more money there are countless opportunities.

If another job isn’t an option, try curring down on your expenses. Take a look at your budget and decided what is necessary and what you can live without. Cut your cable bill, stop eating out, carpool to work. There are many ways you can cut down your budget.

And if that still isn’t enough, you can sell some assets to help get ahead. Maybe you have an extra car, boat, or jewelry you can part with.

It may not be easy, but neither is losing your home to foreclosure.

Receive Professional Help

It’s important to remember that you’re not alone in this process. There are professionals trained in how to stop foreclosures.

There are HUD-approved housing counselors to help you avoid foreclosure. These trained professionals help you organize your finances and understand the law. They will also help you negotiate with your lender.

If you are facing foreclosure, look into the Making Home Affordable Program. This government program works to help you keep your home. They can help lower your interest rate, lower your loan principal, or extend the life of your loan.

The main goal of this program is to help you become financially stable.

Use a Deed in Lieu

Using a deed in lieu is another method that stops foreclosure. A deed in lieu is when you sign your home’s deed back over to your bank or lender.

A bank will agree to a deed in lieu in the following circumstances:

  • Your home has been on the market but you’re unable to secure a buyer.
  • You’ve tried all other options and foreclosure is imminent.
  • You can prove financial hardship.
  • You start the process and voluntarily sign the deed over.

While it releases you from financial obligations, it still impacts your credit history. It can stay on your credit report for seven years, making it hard to secure housing in the future.

Consider Filing For Bankruptcy

Still asking yourself how to stop a foreclosure at the last minute? If you’ve run out of other options, you can file for bankruptcy.

When you file for bankruptcy, it’s illegal for your lender to try to collect on outstanding debts. This allows you time to get your financials in order.

Your mortgage lender is then obligated to negotiate loan terms with you. Together you will come up with a repayment plan. You are still held responsible for your debts.

A bankruptcy will appear on your credit report for ten years. Bankruptcy is a last resort because it has long-lasting effects on your credit.

Need Help To Stop Foreclosure?

Now that you know more about the ways to stop foreclosure, you can move towards financial peace.

A short sale can be confusing but it is often the best solution. This allows you to sell your home and move on with your future.

Still unsure about your decision? Learn more about the differences between foreclosure and a short sale.

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8 Must-Know Tips for Homeowners to Avoid Foreclosure

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If you find yourself in the unfortunate circumstance of facing a foreclosure, you’re scared right now.

You probably purchased a home with a variable interest rate a couple years ago or needed to refinance to take care of expenses, and now you’re afraid that you won’t be able to make your payments anymore.

Unfortunately, many homeowners are suffering from the same burden. They fell victim to variable subprime mortgages that had interest rates that keep rising.

The good news is, we have been recovering from those loans collectively as a nation and there are now many different supports in place to help keep you in your home.

But unfortunately, there are also some scam artists out there that take advantage of people like yourself. Learn how to avoid foreclosure with this helpful article and how to recognize scams when you come across them.

1. Don’t Bury Your Head in the Sand

With so many people out there looking desperately for mortgage relief, many solutions are now available. The government offers options and lenders also have plans in place to help their customers stay in their homes.

Don’t just ignore the problem, there are options out there. You should open and respond to everything you get in the main from your lender. If you just let things get worse, then it will be more difficult for your lender to work with you.

2. Contact Your Lender and Let Them Know What’s Going On

Your lender does not want to have your house. They want your money. That means that if you contact them early enough, they will do what they can to help you through a financially trying time.

Before you try anything else, give your bank a call and find out what kind of assistance they have available. Be honest with them about your situation and try to reach a resolution that can keep your family in its home.

When you call your lender, be prepared with all of your account information and transaction history. You want to have your facts together so you can present your case well.

It’s a good idea to write a short summary of the financial hardships you are facing before you place your phone call, that way you won’t get flustered on the phone dealing with such an emotional process.

3. Know Your Rights

Depending on what state you live in, and what your original loan says, there are a variety of different things that can happen if you fail to make your mortgage payments on time. Check out your state’s government housing website for more details.

There you will find information like how much notification your lender has to give you before they can foreclose on your property or evict you. With this knowledge, you will know exactly what path lies ahead and can plan how to avoid going down it.

4. Consider a Short Sale

If you’ve never heard of a short sale, its the term for selling your house for an amount that is less than the amount that you owe on it. That means that you would have to eat the difference.

A short sale is a good idea because you won’t have to make your mortgage payments during the process, which can allow you to get to work on repairing your finances more quickly.

It also means that you will be in a better place to get a house the next time you try. After a short sale, you can buy a house in two years, where with a foreclosure, it takes five to seven years.

5. Contact a Counselor

Predatory lending practices have been such an issue for so many people that the Housing and Urban Development department of the United States government set up a free hotline for advice. It’s called the Hope Hotline – (888)995-HOPE.

6. Reprioritize Your Spending

Having a household budget will help you figure out where you can find more money to put towards your mortgage.

Take the time to break down your spending to a weekly basis so that you can see exactly where it’s going and redirect any available funds.

7. Avoid Foreclosure Prevention Companies

Since so many people are affected by predatory lending processes, there are some businesses that have sprung up out there hoping to take advantage of people in their hour of desperation.

You’ll know these companies because they will make it seem like they can solve your problem overnight. Make sure you do your due diligence and realize if it sounds too good to be true, it probably is.

8. Get Proper Legal Advice

Many people were drawn into the housing market by attractive interest rates that would go up over time. Advocates for fair housing believe that many of these homeowners ended up with loans they wouldn’t be able to afford in the future.

Although it may have been nice to live in your home for the past few years, someone should have advised you to take out a smaller loan, knowing that eventually, the interest rates would rise.

Now that you have fallen victim, you need to be careful not to make any more mistakes. Get all the facts and information out there so that you can make the most informed decision for your family.

This article is a great place to start, but you should also consult the FDIC’s resources. They have information available on how distressed homeowners can take the next step for getting into a better payment situation using government programs.

How to Avoid Foreclosure

Now that you know how to avoid foreclosure, you know how to make the best choice for your family.

To learn more about short sales and how to take control of your mortgage, check out our blog today.

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Common Real Estate Investment Mistakes That Lead to Foreclosure

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U.S. foreclosure filings hit a 12 year low in 2017. Nevertheless, 676,535 homeowners lost their homes due to foreclosure: a painful experience to be sure.

But what if you could avoid going down the road towards foreclosure? Who wouldn’t want to avoid that scenario?

It’s not possible to avoid life-changing events that could alter your financial situation. But it is possible to significantly reduce the likelihood you’ll ever be faced with such dire consequences.

How do you do that?

You simply need to avoid making common real estate investment mistakes that often derail homeowners.

Read on as we examine the most important mortgage mistakes to be aware of before you buy and during your repayment period.

Steer Clear of These Home Loan Mistakes Before You Buy

The best way to avoid foreclosure is to prevent yourself from ending up in such an unenviable position.

Be careful not to commit these mistakes before signing any loan documents.

1. Buying Too Much House

One of the biggest mistakes you can make is to purchase a home you can not comfortably afford.

It is an easy mistake to make. Contrary to what you may think, most banks will lend you more than you need.

Banks determine your loan amount based on your gross income before taxes. They don’t consider your monthly expenses such as insurance and utilities.

Signing a loan for more than you can afford sets you up to be “house poor.” You’ll have no wiggle room in the event of an emergency, such as the loss of a job.

Simply put, it will be too easy to fall behind and risk foreclosure.

What to do instead:

Experts recommend spending no more than 28% of your income on your home. This figure includes the principal and interest on your loan payment plus property taxes and insurance coverage.

Create a realistic budget for life in your new home, making sure you can be comfortable even if you encounter a significant change.

2. Not Getting a Fixed Loan

With the interest rate of fixed-rate loans on the rise, the attraction to adjustable-rate mortgages (ARMs) is understandable.

An ARM may be tempting now, but it will eventually reset. And when it does, the interest rate will likely be higher and you may not be able to refinance at that time.

The new payment may be too expensive and, depending on the housing market, it could be tough to sell your home.

It’s easy to see how this situation can quickly escalate to missed payments and even foreclosure.

What to do instead:

Don’t be penny wise and pound foolish. Stick to a fixed-rate loan and sleep well at night.

The only time an ARM makes sense is if you plan on moving within 5 years or so.

There are many loan structures for real estate financing, but your best bet is almost always to seek the security of a fixed loan.

3. Underestimating Home Ownership Costs

Don’t make the mistake of only factoring your mortgage into your budget.

You’re going to incur a number of home-related expenses such as:

  • Property tax – The tax man always cometh, and home taxes can cost you thousands of dollars each year.
  • Homeowners association (HOA) – If your new neighborhood has an HOA, you’ll be required to pay dues. These monthly fees can range from $50 to several hundred dollars.
  • Insurance – You will need to purchase home insurance, and you may be required to carry mortgage insurance and even possibly hazard insurance.
  • Home costs – You won’t be renting anymore, so you will have to pay the utilities and the inherent costs of maintaining your new home.

What to do instead:

Before you sign on the dotted line, know what your mortgage payment will be, including the interest. Factor in all the costs of home ownership in your monthly budget and make sure you can be financially comfortable.

Mortgage Mistakes to Avoid During the Repayment Period

If you’re already living in the home and you still owe your lender, steer clear of these common errors to avoid foreclosure.

1. Ignoring Your Lender

If you’ve missed a payment, it’s easy to avoid communication with your lender.

But that’s the biggest mistake you can make, and it often leads to foreclosure.

What to do instead:

Remember, you have 120 days after your first missed payment before a bank can foreclose on you.

Maximize that time by contacting your lender and seeking options, such as payment arrangments or loan modification programs.

You may even be able to avoid foreclosure through a short sale of your home.

The sooner you act, the better.

2. Not Taking Advantage of Government Options

When you ignore your lender, you don’t have the option of enrolling in loan modification programs.

These programs modify the terms of your deed of trust contract, resulting in lower monthly payments.

For example, the Home Affordable Modification Program (HAMP) gives relief to struggling homeowners.

Many states have their own modification programs designed to keep you in your homes with lower monthly programs.

What to do instead:

Remember this: Your lender is prohibited by law from foreclosing on your home if you are enrolled in a government-sponsored loan modification program.

Consult a U.S. Department of Housing and Urban Development (HUD) approved counselor to examine your options and create a plan-of-action.

3. Falling Prey to Scams

Your loss can be a scammer’s gain if you’re not careful. Unfortunately, many people will line up to take advantage of you if you face the possibility of foreclosure.

Be mindful and avoid the following scams:

1. Never Sign Over Your Deed

Some scammers will state they can take care of the problem if the deed is in their name.

This is a good way to lose your home. Don’t fall for it.

Signing over the deed will not eliminate your loan debt. It simply removes your legal right to your house.

2. Beware of Exorbitant or Upfront Fees

Don’t listen to anyone who wants to charge you to explain your options.

You can always get free help from HUD-approved housing counselors.

3. Stop When You Hear the Word “Guaranteed”

No one can guarantee you they can resolve your foreclosure. Any resolution is most likely predicated on your lender’s approval.

Be very skeptical of anyone guaranteeing to get your loan modified or resolve your foreclosure.

The Bottom Line About Real Estate Investment Mistakes

You can significantly increase your odds of avoiding foreclosure simply by steering clear of common real estate investment mistakes.

Before you buy your home, make a realistic budget allowing for every expense you will incur in your new home.

And if you are facing foreclosure, seek help from qualified and legitimate sources.

If you like our content, please follow our blog.

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10 Tips for How to Avoid Foreclosure

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Right now in the United States, there are over 600,000 properties that are in a state of foreclosure.

Foreclosures can mean much more than a loss of property. They can have lingering effects on your future, your credit history, and your daily life.

Even though your phone won’t stop ringing and the bills won’t stop coming, it doesn’t mean this is the end.

Here are ten tips on how to avoid foreclosure.

1. Consider a Short Sale

A short sale is a way to recoup the financial loss by selling your home below market value. Securing a buyer relieves some of the financial burdens and helps to save your credit.

This is the option for homeowners facing the near threat of foreclosure. In order to complete a short sale, you must be unable to refinance your mortgage and unable to sell your house at a price that would cover the mortgage.

Once a short sale is complete, your mortgage dealer forgives any remaining debt. Not all properties qualify for a short sale, so it’s important to talk with your lender.

2. Take Advantage of the Making Home Affordable Program

The Making Home Affordable program offers mortgage relief to help those avoiding foreclosure.

This federal program allows eligible homeowners the opportunity to reduce your monthly mortgage payments and explore any other available options. Options can include:

  • Lowering your interest rate
  • Extending the life of your loan
  • Lowering the loan principal

The end goal is to reach a solution that can be sustainable for you in the long-run.

3. Refinance Your Loan for Lower Payments

Refinancing your loans is one of the many ways to prevent foreclosure. The earlier you act, the better chance you have of refinancing.

Refinancing replaces your current mortgage with a new mortgage. The new mortgage will come with new terms, interest rates, and monthly payments. Your lender will look at your credit score and the ability to meet your new payments when granting a new loan.

Each loan is different, so it’s important you find the one that’s right for you.

4. Get in Contact With Your Lender

Contacting your lender can be a viable option for stopping foreclosure.

Opening the doors of communication lets your lender know you are willing to put in the effort to stop the foreclosure process. If you have trouble getting in contact with your lender, there are resources to help.

During this process, it’s important to keep track of all correspondence sent to you by your lender and document any phone calls. This will help you stay organized and be ready to take advantage of any opportunities that come your way.

5. Talk With a HUD-Approved Housing Counselor

Get in touch with a housing counselor to help you navigate all your options. These trained professionals work with people like you every day and understand the ins and outs of foreclosure.

Foreclosure prevention services are available in every state and are available free of charge. The counselor can help you understand the law, organize your finances, and represent you in any negotiations with your lender.

6. Sell Your Assets

Selling your assets can be used to help get caught up with mortgage payments. This could include selling the second car, parting ways with a few family heirlooms, or cashing out a retirement plan.

Saying goodbye to these assets can be hard, but if used appropriately may be a great way to avoid foreclosure. You can always buy back possessions after your finances are back in order.

7. Create a Forbearance Agreement

Have you experienced a job loss or a sudden illness? Are your financial struggles a temporary situation? If so, forbearance might be the right option for you.

A forbearance agreement involves your lender agreeing to lower or stop mortgage payments for a short period of time. This allows you some time to get back on your feet to help with stopping foreclosure.

You must resume full payment at the end of the forbearance period. You also must pay any additional amount needed to be current on missed payments, which includes principal, interest, taxes, and insurance.

8. Consider a Deed in Lieu

A deed in lieu transfers ownership of the home in exchange for a release of your mortgage obligation. This immediately releases you of any obligations associated with the loan.

There are different options available with a deed in lieu that involve you leaving the home immediately, staying in the home for a few months without paying rent, or leasing the home for up to a year.

A deed in lieu can appear on your credit history for up to seven years.

9. Bridge Your Income Gap

While finding a new, high-earning career may not be the answer, now is a good time to tighten the purse strings.

Cut back on things around the house you don’t need. Try getting rid of cable, shopping at discount stores, packing your lunches, or picking up odd jobs around your neighborhood. Any extra money can be spent to help get you back on track with your mortgage payments.

10. File For Bankruptcy

Considering bankruptcy as a way to avoid foreclosure should be treated as a last resort. Bankruptcy can lead to the loss of other assets besides your home and will appear on your credit history for up to 10 years.

When you file bankruptcy, collectors are forbidden by law from collecting on outstanding debts including your mortgage. Bankruptcy will allow you more time to get your finances together. Your mortgage company will be required to create a reasonable repayment solution with you, which could help you save your home.

Need More Information On How To Avoid Foreclosure?

Make sure you do the research to figure out what option works best with your situation. Our team at Short Sell Blog will help provide you with up to date, well-researched information on how to avoid foreclosure and get on with your life.

Never hesitate to contact us for help when it comes to your home and foreclosure.

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Consequences of Foreclosure: 6 Ways Your Future Could Be Affected

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Losing a home to foreclosure can be devastating. Buying a home is a part of the American dream. When the dream ends in shambles you have to pick-up the pieces and rebuild.

Foreclosure can have long-lasting effects. Being trapped in debt is a negative emotional experience that can take a toll. Unfortunately, for most people it is the last and only option when facing significant financial hardship.

Some people, once all hope is lost, will simply abandon the property. Others will decide to stay until the bank takes possessions. Either choice can be humiliating and take years to recover from.

For those going through the process now, you’re probably wondering how long foreclosure will follow you. Continue reading to learn the consequences of foreclosure on your credit.

1. Uncertainty About the Future

Ten years ago when the country was facing a recession, many homeowners lost their homes. Unemployment was at an all-time high and families faced huge financial challenges.

As the country recovered, bankruptcy courts experienced a huge backlog. Days of homeowners remaining in their homes for years after the bank filed for foreclosure, have now ended.

Today, the impact of foreclosure is felt sooner. Now families have less time to come up with a plan for new housing.

If you have limited funds or can’t qualify for an apartment or rental unit, you could find yourself homeless.

Without adequate planning, an eviction is eminent. Not only could families lose their home, but possessions could be removed from the home and placed on the front lawn.

Once you decide you do not want to fight for your home, it is best to move before the information hits your credit report.

2. Ruined Credit Tops the List of Consequences of Foreclosure

Having a foreclosure on your credit is a big deal. If you are facing foreclosure, chances are your credit has already taken a hit. Once a judgement is entered against you, expect another drop of 200 – 280 points.

Credit scores run between 300 and 850 points, with 850 considered a superior rating. Most people experiencing financial problems typically have scores in the low 600’s and below.

The impact of a foreclosure on credit scores can drop your score to the lowest point on the scale. With a score below 500, it will be almost impossible to have credit extended to you.

Lawyers believe that people facing foreclosure should consider bankruptcy, which is easier to recover from, and also quicker.

3. Foreclosures Could Impact Your Employability

More and more employers are performing background checks on perspective employees as part of the hiring process. If your credit score falls below 600, you may be disqualified.

This may not be a problem for some positions. However, it could impact your chances of getting a call back for jobs in the finance industry.

The impact of foreclosure can arise later, even if you already have a position. Sometimes employers run random background and credit checks on existing employees. You could also have issues when seeking a promotion to a finance related position.

Under the Fair Credit Reporting Act, companies are required to give applicants a pre-adverse action disclosure. This is given whenever someone is not hired for a position due to information from a background check.

4. Restrictions on Fannie Mae Loans Could Apply

Following a foreclosure, the last thing on your mind may be purchasing another home. As time passes and your financial circumstances improve, you may have a change of heart.

You will want to know how foreclosure affects your credit when it comes to getting a home loan. Regardless of the type of foreclosure or if you had a short sale, you can expect a wait of 2 to 7 years.

There may be circumstances in which a lender may be willing to offer you a second chance, sooner rather than later. Not all foreclosures are a result of poor money management. Death of a spouse, a relocation or extended illness can lead to foreclosure.

Don’t be afraid to explain your situation to lenders. Just be prepared to present supporting documentation if asked.

5. You May Still Owe the Bank After Foreclosure

The consequences of foreclosures can last well beyond the point of losing your home. If your house is valued at less than what you owed the bank, you may be liable for the difference.

On top of all you’re going through, this is the last thing you need to deal with.

It is important to know if you live in a non-recourse state when facing foreclosure. Certain states do not allow lenders to seek relief for losses on foreclosure sales. Others have specific rules on what types of loans qualify.

A deficiency judgment is an option banks have to recoup losses on the sale of your foreclosed property. This means, if you owed the bank $100,000, but they could only get $75,000, a judgment for the difference could be entered against you.

Keep in mind, it could take a while for a property to sell. So you could get the bill years later.

6. Their May be Tax Implications

You will need to report your foreclosure when you file your tax return. This may be unforeseen consequences of foreclosures.

The lender will send you a tax form 1099-A to be used to record your foreclosure on your taxes. Like other 1099 forms you may receive, the information must be entered on the return.

Depending on how many liens was on the foreclosed property, you may receive multiple forms.

The average person who has gone through a foreclosure will not face tax penalties. However, you still must record the information and go through the steps to ensure this is the case.

You Can Survive Foreclosure

Going through foreclosure is stressful, but once it’s over you can breathe a sigh of relief. The sooner you can rebuild your credit the better.

The consequences of foreclosure may seem like huge obstacles that will plague you for years to come. Shake it off and create a plan to move forward.

If you feel foreclosure may be in your future, check-out our blog explaining what happens when you are facing foreclosure.

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What Happens When a House Goes Into Foreclosure?

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Are you worried that your home might go into foreclosure?

If you’ve missed consecutive payments for your home, there is the possibility your home might go into foreclosure. Foreclosure is what happens when the homeowner fails to make their mortgage payments and eventually loses all the rights to the home.

According to national statistics, 1 in every 1776 homes in the US results in a foreclosure.

While foreclosures can present much difficulty to the homeowner, it doesn’t always have to be the end of the world. Fortunately, there are steps one can take to prevent a foreclosure from happening.

If you’re wondering what happens when a house goes into foreclosure, you’re going to want to keep reading.

What Exactly is a Foreclosure?

A foreclosed home is a home that once belonged to the homeowner but may belong to the bank.

The reason for the bank owning the home is because the homeowner simply stopped or was unable to continue making the necessary payments for the home. In these situations, the homeowner either vacates the home or voluntarily deeds the home to the bank.

In this event, the homeowner forfeits all legal rights to the property.

However, it’s important to consider in these situations that the home never technically belonged to the bank. This means that the bank does not have the ability to simply “take back” the home.

Instead, the bank must foreclose on the mortgage or trust deed and then seize the home.

Why Do Sellers Go Into Foreclosure

Sellers may stop making payments on their mortgage for a number of reasons.

If the seller is unable to pay the outstanding debt of the home or sell the property with a short sale, the property will then go into foreclosure. With this process, the property is attempting to be sold via auction. If the property fails to sell through the auction, the lending institution takes possession of the home.

While most foreclosures happen on an involuntary basis, some sellers do voluntarily fall into foreclosure. For example, during the housing market crash between 2005-2008, many homeowners simply walked away from their homes.

This was due to the fact that the value of the home had fallen so dramatically that they owed more to their mortgages than what the home was worth.

While this temporary solution had adverse effects on these homeowners, it was common during the housing crisis.

It’s important to understand that a foreclosure is the last resort for banks. And, while the specifics of foreclosure can vary from state-to-state, it’s most simple to break the process down into five stages:

1. Missed Payments

To understand how foreclosures work, remember that most homeowners need to take out a mortgage on their home. This mortgage entails making monthly payments to eventually “pay off” the home.

If the homeowner fails the make these mortgage payments on time, this has the potential to transition the home into foreclosure.

But, all is not lost if the homeowner fails to make a few payments. The reality is that foreclosures cost the bank a lot of money and headaches. Because of this difficulty, the banks want to avoid the process just as much as the homeowner.

That being said, there are options before the house falls into foreclosure. If you are in jeopardy of missing your mortgage payments, be honest and upfront about your troubles with your lender. Together, you can determine other strategies to hopefully keep your home and avoid foreclosure.

2. Public Notice

After 3-6 consecutive months of failing to make the necessary mortgage payments, the lender will record a public notice. This notice is registered in the appropriate office and indicates the homeowner (borrower) has defaulted on the mortgage.

In most states, the lender is required to post this notice on the front door of the property. This notice services as a means of making the homeowners officially aware that they may lose the rights to the property and face a potential eviction.

In other words, the homeowners are in danger of facing a foreclosure.

3. Pre-Foreclosure

Next comes a period of known as pre-foreclosure.

After receiving the notice from the lender, the borrower has anywhere from 30-120 days to work out an arrangement with the lender. These options are generally selling the home via short sale or to pay the outstanding amounts owed to the lenders. This grace period offered to homeowners generally varies from state-to-state.

If the homeowner fails to satisfy these arrangements and the default is not paid off, the process of the foreclosure continues.

4. Auction

This is when things start to get very serious for the homeowners and the period in which they are likely to lose their home.

Assuming the said default is still not remedied by the given deadline, the lender will set a date for the home to be offered for sale via a foreclosure auction. This is also known as a Trustee Sale.

The notice of the sale is posted on the homeowner’s property and is also advertised in the newspaper/online publications. Though, in many states, the homeowner has the right of redemption up to the moment the home will be auctioned off.

If the homeowner fails to come up the with the necessary cash to re-purchase the home, the home is sold to the highest cash bidder.

5. Post-Foreclosure

Sometimes foreclosed homes are auctioned for sale but with no success. In this event, if the home remains unpurchased, the lender (usually the bank) will take ownership of the property. The home, then, becomes a bank-owned property.

What Happens When a House Goes into Foreclosure

If you find yourself wondering what happens when a house goes into foreclosure, the odds are you may have missed a few mortgage payments.

If you’re worried your home might go into foreclosure, be sure to consider the many options outlined above. And, remember, failed mortgage payments don’t always have to result in irreversible damage. Knowing the facts is the best way to avoid or prepare for a potential foreclosure.

Alternatively, if you are considering purchasing a foreclosed home, be sure to acquaint yourself with the facts and how this process works. While it can present unique opportunities to buyers, it’s essential to understand the costs and benefits of foreclosures.

Are you interested in real estate? Be sure to visit our blog to learn more about how foreclosures and short sales work.