If you’re facing foreclosure, an effective way of putting a halt to the problem is by getting loans to stop foreclosure. The reason is that foreclosures are extremely damaging to your credit score, not to mention the stress and hassle of being forced to move out of your home. However many homeowners facing foreclosure do not believe that they are eligible for the loans they need to save their homes. What can you do? It turns out your chances are better than you may think. Let’s look at the options.
Loans to Prevent Foreclosure
Traditional loans stop foreclosure effectively — if you can get them. A traditional lender like a bank or credit union will offer the best rates and look the best on your credit history when you later try to get financing for something else.
Unfortunately, traditional lenders can be extremely picky about whom they lend to. Homeowners facing foreclosure often do not have the best credit. In some cases, they may be facing foreclosure because of serious adverse life events that have cost them their jobs and income, leading them to tap out their credit to “stay afloat” — and which may be reflected in their credit scores.
In other cases homeowners are facing foreclosure because they came into things with sub-prime credit and obtained a mortgage from a sub-prime lender. Now, thanks to the housing crisis and its aftermath, sub-prime lenders have started closing their doors in Canada and calling in their loans. The borrowers who find themselves being asked to repay their mortgages often find there are no traditional lenders willing to take on borrowers with sub-prime credit.
Therefore, traditional loans are often not an option. Fortunately, they are also not the only option.
Getting a Loan to Stop Foreclosure
Learn the pros and cons of getting a new loan—either
If you’re facing a foreclosure, you might be able to refinance your loan or take out a reverse mortgage to save your home—although refinancing could be difficult and reverse mortgages are risky.
Refinancing usually isn’t possible if you’ve missed a lot of mortgage payments and have bad credit. While reverse mortgages don’t require credit qualification, taking out this kind of loan is usually a bad idea. Reverse mortgage loans are basically designed so that the lender eventually ends up with the home and have many other significant downsides as well.
Read on to learn more about refinances and reverse mortgages, why these options probably aren’t ideal ways to prevent a foreclosure, and alternatives to potentially consider.
Refinancing Your Loan to Stop a Foreclosure
With a refinance, you to take out a new loan to pay off the existing mortgage, including the delinquent amount, which will stop the foreclosure. You will need to have a stable income and, usually, equity in the home to qualify. By refinancing, you might be able to get a lower interest rate, which would reduce your monthly payment amount.
However, getting a better interest rate—or approved for a refinance at all—can be difficult if you’re facing foreclosure because you fell behind in your payments. Once you skip a payment, the lender will start reporting the delinquency to the three major credit reporting agencies: Equifax, Transition, and Experian. Your credit score will then fall. The more payments you’ve missed, the worse your score will be. People with bad credit generally can’t qualify for a mortgage refinance, let alone one with better terms than they already have. (To learn more about what happens after you stop making payments, see The Order of Events When You Stop Making Mortgage Payments.)
What’s a Foreclosure Bailout Loan?
A “foreclosure bailout loan” is a refinance loan that’s marketed to struggling homeowners to bring a home out of foreclosure. The homeowner takes out a new mortgage to pay off the loan that’s in default. You don’t have to have good credit, but these loans usually require you to have considerable equity in the property, and you’ll have to pay a very high interest rate. In almost all cases, you should avoid foreclosure bailout loans. People who can’t make their regular mortgage payments also tend to default on foreclosure bailout loans; you’ll probably find yourself back in foreclosure after getting this type of mortgage.
Also, you should be aware that some bailout lenders are scammers who are just trying to cheat you out of your money—or title to your home—and leave you in worse shape than you were in before.
Using a Reverse Mortgage to Stop a Foreclosure
If you can’t qualify for a refinance, another option—though not necessarily a good one—to stop a foreclosure is to take out a reverse mortgage to pay off the existing loan. The most widely available reverse mortgage is the FHA Home Equity Conversion Mortgage (HECM).
With a reverse mortgage, people who are 62 and older can get a loan based on their home equity. A reverse mortgage differs from a traditional mortgage in that the borrower doesn’t have to make monthly payments to the lender to repay the debt. Instead, loan proceeds are paid out to the borrower in a lump sum (subject to some limits), as a monthly payment, or as a line of credit. You can also get a combination of monthly installments and a line of credit. The loan amount gets bigger every time the lender sends a payment, until the maximum loan amount has been reached.
If you’re facing a foreclosure and you get a reverse mortgage, the reverse mortgage stops the foreclosure by paying off the existing loan. But reverse mortgages themselves are often foreclosed, and come with many disadvantages, like potentially losing your eligibility for Medicaid and high fees.
Alternative lenders are available who will take you on even if you have bad or no credit. As a rule, the main criteria are that you have at least 10% equity in your home and a steady source of income. Provided you have these things, alternative lenders can quickly write you a loan to stop foreclosure immediately.
Compared with traditional loans, alternative mortgages generally do not last as long. The idea is to use them as a “bridge” which allows you to stay in your home — and avoid seriously damaging your credit with a foreclosure — until you can get “back on your feet” financially. Since you retain up to 90% of the equity in your home, you can also refinance many of your other debts (such as property taxes) and help improve your credit score while you work back towards a traditional mortgage.
At HOS Financial, our Refinance Buy Back program will connect you with alternative lenders who will refinance your home even if you have bad credit. At the same time, we will also provide you with the credit mentoring you need to restore your credit record to good standing.
The result is that by the time you exit the program (usually in 2-3 years) you will have the kind of credit that allows you to walk into a bank and walk out with a regular mortgage. To make things even better, a part of the rent you pay while in the Refinance Buy Back program will be set aside to use as a down payment on your new mortgage.
Other Options to Consider
If you’re having trouble making your mortgage payments, consider looking into other foreclosure prevention options. A few different options to consider include getting a loan modification, reinstating the loan, working out a repayment plan, or giving up the property in a short sale or deed in lieu of foreclosure. You might also consider selling the home and moving to more affordable accommodations.
What Mortgage Foreclosure Solutions Are Available To Stop Foreclosure?
If you’re facing the prospect of losing your home, there are a number of mortgage foreclosure solutions available. Depending on your finances, these range from ways to keep your home (in many cases without needing to go to court) all the way to ways you can make a “clean exit” with minimum stress and damage to your credit report. Let’s look at what choices you have available to you.
The Price Of Doing Nothing
For many homeowners facing foreclosure, simply doing nothing is a very tempting option. Just the word foreclosure can be terrifying. As a result people often lose their homes, suffer terrible damage to their credit report (which may cost them the ability to get a loan on a car or even the ability to get a job), and may even find themselves staring down a sheriff armed with an eviction notice.
To make matters worse, if the home does not sell at a high enough price to satisfy the outstanding mortgage balance and court costs and legal fees and other expenses… you may find these bills hanging over your head long into the future.
The fact is that no matter how fearful the prospect of dealing with a foreclosure may be, doing something is always better than doing nothing. Even if you cannot afford to keep your home, simply talking to the lender and working out a “friendly foreclosure” will leave you far better off down the line.
If you can afford to keep your home in the long term but you are simply the victim of unfortunate circumstance, then this is an even better option.
Negotiating With the Lender
If your finances are in reasonably good shape but you happened to fall behind on your payments due to an emergency, there’s a very good chance your lender will be willing to negotiate. This is especially true if they have not actually brought the courts into play just yet. They may be willing to work out an alternative payment plan with you — this will allow you to stay in your home, and generally represents the best of all possible options.
Formal foreclosures are expensive and slow from the lender’s perspective. Therefore, if you can show them that you will be able to keep up with your payments in the future, the lender may be quite willing to work out a new schedule of payments that will bring you current again — and which will let you avoid foreclosure entirely.
Friendly Foreclosure or Short Sale?
Just as the name suggests, a “friendly foreclosure” does not involve an adversarial process where the lender tries to rip your home out from under you using the court system. Rather, in a friendly foreclosure you go to the lender and agree to hand over title and vacate the property in exchange for them calling it a “done deal.”
With a friendly foreclosure, you generally cannot be held liable for any excess expenses. While a friendly foreclosure will show up on your credit report, it isn’t nearly as damaging as a “formal” foreclosure.
Short sales are similar to a friendly foreclosure but usually you the homeowner are responsible for having the home sold. The proceeds of the sale go to the lender, who agrees that even if the home sells below market value they will consider the mortgage case closed. As with a friendly foreclosure, a short sale still hurts your credit — but, again, not as badly as the alternative.
Refinance to Keep Your Home
If you would prefer to stay in your home, or if your lender is not being cooperative, you can still save yourself from a court foreclosure. This works by simply paying the balance of the mortgage by refinancing.
In the event your credit is in good shape, you may be able to refinance with a traditional lender. If this is an option for you, it’s likely your best one. Unfortunately as a homeowner facing foreclosure you may not represent an attractive “credit risk” to traditional banks.
That’s why HOS Financial has a Refinance Buy Back program which does an “end run” around the traditional banking system by connecting you with private lenders. These lenders are willing to pay off your mortgage no matter what your credit score happens to be.
In fact, the HOS Financial program can stop foreclosures even if they’ve already begun to move through the court system. As long as your case is still inside the “Redemption Period,” HOS will pay the amount the judge has set — and put an end to the case.
After HOS Financials private lender takes over the mortgage, you keep living in your home. You don’t have to worry about any judgments on your record. Instead, a portion of your monthly rent is put aside to go towards a future down payment — so you will be able to smoothly transition back to a traditional mortgage in just a few years.
The Refinance Buy Back program does not stop there, either. While you’re in the program, you will work with HOS Financials expert credit counselors to bring your credit report back to good shape. As a result, by the time you are ready to go back to a regular mortgage, normal banks will be happy to see you walk through their doors.
If this sounds right for you, contact us immediately. Foreclosures mean that the clock is ticking, and you need to take action now or face losing your home forever.
Foreclosure Lawyer Free Consultation
When you need to stop a foreclosure, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506