Foreclosure - How to Avoid Losing a House
Directions for Responding to Financial Crisis Before it is Too Late
Aug 28, 2008
Many people in the United States are facing home foreclosure during these difficult economic times. Job loss, pay cuts and overtime shortages have left many people with more bills than income. For these families who are facing financial crises, the key to avoiding foreclosure is to take quick and immediate action. Families should:
- Get financial advice from a trusted source. Families in crisis need a plan. Many churches offer Dave Ramsey’s Financial Peace University. The program trains people in creating a budget to get out and stay out of debt through money management. If such a program is not an option, Dave Ramsey’s books are offered at many local libraries.
- Set an emergency spending plan. The U.S. Department of Housing (HUD) recommends the following order of spending priority: food, utilities and shelter. Fuel for travel to and from employment is also a top priority. To families in crisis, it is necessary to immediately cut out anything that is not a necessity. These extras can always be reinstated when the crisis has passed. Gym memberships, cell phones, cable television, newspapers and magazines, and any optional activities with monthly fees are examples of extras which may be temporarily cut.
- Be active in adding income. A family can add to the income by selling unused items in a garage sale or at a store that buys used goods. Consignment shops will often buy gently used clothing. Music stores may buy used equipment, CDs, tapes and records. Many jewelry stores are currently advertising “top dollar” for used gold jewelry. Small amounts can add up to big help. Additionally, a family member may need to take on a temporary part-time job to help the family get caught up.
- Communicate with the home lender. Discussing financial strife can be embarrassing, but avoiding the problem will not make it go away. The longer it is avoided, the worse the situation will get. Facing the difficulty proactively with open communication may win grace from the lender. Lenders deal with these situations frequently, and most have options to help families through tough financial times.
Potential Lender Options to Avoid Foreclosure
Foreclosures are costly to a lender. Consequently, most lenders would rather avoid the situation and are willing to offer options to help their case. It is in the best interest of the borrower to approach these options as soon as a problem arises. According to the Federal Housing Administration, a lender may offer:
- Reinstatement of the loan: The lender and borrower agree on a set time by which the borrower will repay the missed payments.
- Forbearance: The lender may offer to temporarily reduce or even suspend payments for a short time along with a plan for repayment.
- Repayment plan: The lender may allow the borrower to incorporate a missed payment within a series of loan payments, temporarily raising the payment by a small amount until the loan is caught up.
- Mortgage modification: The lender may add missed loans into the total balance and refigure loan payments, alter the interest rate or extend the term of the loan.
Looking Toward the Future
It is important for the borrower to realize that these fixes are only temporary. A family must figure out an achievable financial plan, in which new, potentially higher loan payments are incorporated. The key is making and sticking to a budget that covers all expenses with matched income.
Source:
“You Can Avoid Foreclosure and Keep Your Home.” Foreclosure. Federal Housing Administration. Accessed August 28, 2008.
