Possibly the most serious credit problem anyone can face is the potential loss of a home through foreclosure. Typically, this process starts once the payments are delinquent by three months. Eventually, if some kind of resolution between the homeowner and the mortgage lender isn’t agreed upon, the lender can legally take the home from the owner to sell and recoup their losses.
If you fall even one month behind on your mortgage payment, it’s time for swift action because the consequences are so severe. First, you have to ask yourself if there’s a legitimate reason for your inability to make the payment. Did you lose your job or were you out of work for a while? Have you recently gone through a divorce? Or are you having problems because you’re spending habits are out of control?
If you earn enough money, but can’t seem to pay the bills, you should seek counseling help from a qualified, HUD-approved agency. They can work with you on your money management skills and help get you back on track with your mortgage.
In either case, the best way to deal with foreclosure is to communicate openly and honestly with the lender. Contact them as soon as you feel you’re in trouble, even if you’re only one month behind. And if you’re experiencing some form of financial hardship, let them know. You have to understand that, for the lender, it’s in their best interest to keep you in your house, so they’ll probably accommodate you as long as they believe you are serious about getting back on schedule.
If you’re already in foreclosure you do have several options. The first one is to reinstate yourself by bringing the loan current, including all the late fees that may have accumulated. This means sending a large sum of money to cover all the missed payments and fees. If you have an investment, such as a 401k you can borrow against or cash out in an emergency, it may be worth it to save your home. Or maybe you have an extra car or a boat you could sell to raise the money. One option I don’t recommend is getting deeper in debt to get caught up, unless you are absolutely sure you can pay the second debt off. Otherwise, you only prolong the agony because you’re still overextended.
Another option is a forbearance, which means you resume your payments, with money added to your loan to cover missed payments and late fees over a specific period of time. The lender will probably also require a significant lump sum up front before agreeing to this type of arrangement.
A deferment is an arrangement wherein the lender agrees to suspend the payments for a specified period of time. It’s fairly difficult to get the lender to agree to this, unless you can document that you will be receiving a large sum of money, such as a court settlement or quarterly bonus, in the near future.
Overall, there are a lot of factors that will dictate what your best decision is. If you want to resolve the debt in such a way that you vacate the property, several other options open up for you. They won’t save your home, but they may save your credit record. With so many options available, be sure to ask the lender or a qualified credit counselor for some guidance.