Avoid the High Foreclosure Rates: Key Tips for Financial Success
December 7, 2009 by Admin
Filed under Stop Foreclsoure General
When you are facing a foreclosure in Philadelphia (or anywhere), you may feel that you don’t have the luxury of taking the time to consider all of your options. This article will tell you everything you need to know to help you make an informed decision by giving you quick information on all of the options available to you. If you want to keep your home, we will give you information on reinstating your loan, refinancing your home, and filing for bankruptcy. If your goal is to sell your home, we will tell you about selling to an investor, listing with a Realtor, and entering into a workout agreement with your lender. Only you will know which option is right for your particular situation, but this article will help you to learn about all of the things you should consider in making this important decision.
Keeping Your Home by Reinstating Your Loan
This plan is available to homeowners who have the available funds to pay back the mortgage holder for missed payments, typically over 1 or 2 years. Usually, a lump sum payment is required up front, followed by smaller monthly payments in addition to the regular mortgage payment. Several differently structured plans may be available from your lender, ranging from total reinstatement (the past due balance is caught up in one payment) to partial claim programs (the mortgage holder lends the homeowner part of the arrears, to be paid off over the remaining life of the mortgage). Other plan structures include forbearance plans (payments are suspended for a brief period of time, then are made up by paying extra over the next several years’ payments) and loan modifications (changing the terms of the original loan).
When your bank figures the arrears on your account, they will likely include any missing payments, bank fees, and attorney fees. Before reinstating the loan, borrowers will likely be required to pay the lender 30-50% of the past due balance before the agreement can be reinstated. All of these plans, if they can be worked out with your lender, will allow you to keep your home and avoid bankruptcy. If you have a good fixed interest rate, you will be able to preserve that by reinstating your loan. However, these plans do require you to come up with a large amount of ready cash to start, as well as the ability to make larger mortgage payments for the next several years.
To take advantage of this type of plan, you must speak to the loss mitigation department at the bank which holds your mortgage. You will need persistence and a fair amount of negotiating skill to get the best plan for your budget.
Keeping Your Home by Refinancing Your Mortgage
This is a fairly common process used by many homeowners each year in search of better interest rates. Refinancing allows you to stay in your home and often gives you a “free” month with no mortgage payment as the new loan, in essence, makes the final payment on your old loan. Lenders will decide whether or not to loan you money based on a ratio called “loan to value” or “loan to equity”. Each bank has their own standard for this ratio taking into consideration the market value of the home and comparing it to the dollar amount you would like to borrow. In order to determine market value, your home must be appraised, which may cost as much as $500.
As each lender may insist on its own appraisal, these fees can add up quickly. If your market value is too low, or your desired loan amount is too high, the lender will not finance the mortgage, and you will simply lose the appraisal fee. In addition, a foreclosure refinance often involves paying points, with each point representing 1 percent of the loan amount. Points and other closing costs and broker fees can add as much as $10,000 – $20,000 to the cost of your loan, depending on state law.
Your new loan will be based on your new credit score, which will likely be lower than it was when you first bought your home due to your missing payments. This lower score will result in a higher interest rate. Finally, you need to consider the fact that you will be refinancing a larger amount than you currently owe, which, combined with your higher interest rate, will mean that your payment will increase.
Keeping Your Home by Filing Bankruptcy
This drastic option should be seen as only a last resort. Although you will likely keep your home from foreclosure after declaring bankruptcy, the filing will drastically lower your credit score for many years to come. Not all debts are discharged through bankruptcy, so you will still have some of your bills to pay, in addition to your mortgage. If you are seriously considering this option, make sure to consult with a qualified bankruptcy attorney to find out about the impact bankruptcy will have on your financial future.
Selling Your Home Quickly to An Investor
Many real estate investors want your home and can close in as little as 7 to 10 days because they have ready cash to pay you. The amount of the sale may or may not net you the full retail cost of your home, depending on the investment group. As soon as the title is transferred to the investor, foreclosure proceedings against you will stop immediately. The investor will accept your home as-is, which will help you avoid fix-up costs. However, the investor will want your property very soon after closing, so he can rehabilitate it and sell it to get his money back quickly. If you are not prepared to move right away, this may not be the option for you.
Selling Your Home by Listing with a Realtor
This option is no different whether you are facing foreclosure or in good financial standing with your lender. If you have sufficient time to wait for a good offer on your home, and if your home is in good condition and in a desirable market, this may be a good option for you. However, you must keep in mind that the seller typically pays all realtor fees for both parties’ agents, which may be as much as 7% of the property’s value. You will also have to make your house presentable for showings, deal with picky buyers, and be willing to meet any contingencies the buyers write into the contract, such as having the sale subject to a home inspection or even subject to the buyer selling his existing home. If you are facing imminent foreclosure, you may well run out of time before this process is concluded.
Selling Your Home by Negotiating a Workout Agreement
This option is typically used when the homeowner owes more on a property than what it is worth. The lender may agree to allow you to payoff the loan for whatever you can get for the property, even though it is less than the face value of the loan. The advantage to the lender is that the bank does not have to deal with fixing and selling your home after foreclosing, and they know what they will be getting up front, rather than having to take whatever a fickle housing market may provide when they get ready to sell. As a homeowner, this option is less than desirable because you walk away with nothing in your pocket and no home to live in. It does, however, avoid the foreclosure proceeding and may help you to maintain a better credit rating.
Developing a Plan That Is Right for You
Now that you know your options, it is important that you spend some time planning the best course of action for your personal situation. Based on the amount of time you have available and the amount of ready cash you have on hand, you will need to decide which of the options is best for you. Always be sure you have a back-up plan. You may need to enlist the help of an attorney, a mortgage lender, a Realtor, and/or an investor. All of the costs for these professionals should be included in your plan. You also need to be aware that each of these professionals will have his or her own agenda. A bankruptcy attorney only makes money from you if you file bankruptcy. Likewise, a Realtor only earns a commission if you sell the home. You may want to interview several people from each field to find the one with whom you are most comfortable.
After you have finished the process of avoiding foreclosure, you will also want to make sure that you clean up your credit. When you have missed payments on your mortgage or any other debts, your credit rating goes down. With this lower credit rating comes a higher interest rate on future purchases, unless you take action to repair your credit. There are many disreputable firms that offer to “fix” your credit rating. Unfortunately, often these are a scamdevised to take you money. The ONLY way to fix your credit rating is to make all of your payments on time every month over a period of time. There are many credit counseling services that can help you learn about budgeting and may even be able to negotiate lower interest rates from your creditors. Look for a non-profit service with a good reputation before committing to any contracts.
If you would like a recommendation for any of the professionals mentioned, don’t hesitate to ask. We work with many Realtors, bankruptcy attorneys and credit counseling specialists that may be able to assist you.
WeBuyHomes2Fix.com is a real estate investment company that specializes in purchasing distressed properties. We rehabilitate properties to either sell or rent and to improve your neighborhood. We are not agents or brokers and charge our clients no real estate fees or commissions. We pay cash and can settle as quickly as the situation requires.
For additional information on Foreclosures or if you are interested in selling any type of Real Estate quickly, please contact us now at: 866.643.0315 or fill out the form at WeBuyHomes2fix.com.
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