In addition to a Short Sale and Loan Modification here are four other ways you can avoid foreclosure:
Strategy 1: Refinance
Refinancing requires income, credit and sometimes equity to support a new mortgage trust or deed of trust. If the seller's current income cannot pay the present mortgage, it may be difficult to convince another lender to offer a loan with a reasonable interest rate. Based upon the tightening of qualifying criteria for loan applications, refinancing in today's market is becoming less and less of a viable option. It goes without saying that the only reason to refinance is to lower the monthly payment.
There are 2 general scenarios that offer the best chance of refinancing:
* If the payments are not yet delinquent, the biggest challenge will be getting the home to appraise for the amount they are looking to refinance. This is a big challenge in today's market because of falling property values nationwide. Nobody will refinance a loan for a home that does not appraise.
* If the seller has a decent amount of equity in the home, it may be a good time to try to refinance. Even if payments have been missed, and have dropped, refinancing may be an option. Albeit, not a good one, because whatever the loan product, the seller will likely face higher interest rates. Loan terms usually range from 2% to 10% origination points (each point equals 1% of the financed amount). The seller can expect 10%+ interest rates over the repayment period and have a substantial prepayment penalty imposed (a penalty for paying and refinancing the note early). Nonetheless, there will be lenders that will refinance if equity exists.
Refinancing with FHA Secure Initiative
This Federal Housing Administration (FHA) program (valid in all 50 states) was created to help homeowners with adjustable rate mortgages (ARM) in foreclosure. Qualified candidates will be eligible for the program, which will provide a fixed interest rate loan product. It is important to note that the qualifying terms are evolving. The initial terms set forth to qualify for the FHA Secure Program are itemized below:
1. A history of on-time mortgage payments before the teaser rates expired and the loans reset, if late payments occurred they were AFTER the ARM rate reset.
2. Interest Rates must have or will reset between June 2005 and December 2009.
3. 3% Cash or Equity in the home.
4. A sustained history of employment ; and
5. Sufficient income to make the mortgage payment.
6. Currently on a NON-FHA ARM.
7. You can prove the adjustment date
8. Maximum loan amount of $417,009
For detailed information on this topic, go directly to FHA's website:
http://www.fha.gov/about/fhasindqa.cfm
Strategy 2: Reinstatement
Catching up with the past-due amount and bringing the account current will reinstate the loan. The amount of penalties, late charges, and other fees will depend on how far behind they re on payments. If the property is more than 90 days past due anticipate adding about 1% or more of your mortgage balance as the result of late fees, penalties, attorney fees, appraisal fees, amongst other expenses.
For example, if the seller is six months behind and the mortgage payments (principle and interest) are $1,000 they will be required to pay $6,000 plus miscellaneous fees. If the mortgage balance is $200,000, late fees, legal fees and other fees will likely total 1% of the mortgage balance, or an additional $2,000 for a total repayment of $8,000.
Often lenders will allow rolling the additional fees into the back end of the loan. Instead of a mortgage balance of $200,000, the new balance will be $202,000, using the above scenario. If the lender agrees to such terms the loan will have been reinstated and initial loan terms take effect.
Strategy 3: Forbearance
Forbearance agreements are designed to delay foreclosure, as long as the terms are followed. In general, they are good for a short-term fix and generally are not a long-term solution. They can be valuable tools for lenders at the first sign of trouble by providing the borrower additional time to attempt to solve their financial problems.
The typical forbearance agreement places the delinquent amount on top of the monthly mortgage payment. As soon as an agreement is reached (may or may not be in writing) payments will need to be commenced per the specified start date. A simple example would be if the total amount past due is $6,000, they will be allowed to pay an additional $500 (added to your normal payment) for 12 months. Forbearance plans can go as long as 36 months.
A less common form of forbearance is a temporary hold on foreclosure proceedings with an agreement that allows the property owner to temporarily pay less than the full amount of their mortgage payment (or nothing at all). A common reason lenders consider such forbearances is when the property owner can demonstrate a windfall of money is coming via a bonus, tax refund, insurance settlement or other source; providing they have enough funds to bring the mortgage current at a specific time in the future. The lender will require the property owner to submit a written agreement under with their mortgage payments are reduced or suspended for the agreed upon period. At the end of that period, they can resume regular payments and bring the loan current through a lump sum payment or additional partial payments over a number of months (unless the loan has also been modified to make this unnecessary).
If the seller has multiple mortgages, they must either keep them current or go through the entire process with the additional lenders to prevent them from moving forward with foreclosure proceedings. Generally it is easy to agree to a forbearance agreement and often times much more difficult to fulfill one. It is a sad fact that the terms and conditions initially proposed by lenders are often formulated to fail from the beginning.
Strategy 4: Chapter 13 Bankruptcy
Chapter 13 permits the consumer(s) to:
* Stop Foreclosure
* Stop calls from debt collectors
* Pay unsecured debt down without accruing interest (student loans are an exception)
* Protect other assets
* Reorganize finances with the additional time
* Refinances debt and allows living expenses to be met before paying off creditors
* Allows homeowner to catch up on missed house payments
The moment a bankruptcy petition is filed with the federal bankruptcy court all debt collection activity is stopped. This automatic stay prevents lenders from moving forward with foreclosure. It is important to know that during the Chapter 13 proceedings, the lender will not discuss potential workout arrangements. Chapter 13 means making one cumulative fixed monthly payment, which may include entire car note(s) or small mortgage(s) (generally second or third mortgages) into your Chapter 13 plan.
Generally, the back house payment total, including penalties, will be added up and this amount will be required to be paid this sum to the lender over a pre-determined length of time. This payment is usually separate from the home loan payment and the Chapter 13 consolidation payment.
Under the typical plan, monthly payments are made to the court appointed bankruptcy trustee for generally 3-5 years. The amount of the monthly payment is determined by sever factors, such as amount of debt, ability to repay, and the extent of assets that exist. The bankruptcy trustee distributes the money to creditors.
Strategy 1: Refinance
Refinancing requires income, credit and sometimes equity to support a new mortgage trust or deed of trust. If the seller's current income cannot pay the present mortgage, it may be difficult to convince another lender to offer a loan with a reasonable interest rate. Based upon the tightening of qualifying criteria for loan applications, refinancing in today's market is becoming less and less of a viable option. It goes without saying that the only reason to refinance is to lower the monthly payment.
There are 2 general scenarios that offer the best chance of refinancing:
* If the payments are not yet delinquent, the biggest challenge will be getting the home to appraise for the amount they are looking to refinance. This is a big challenge in today's market because of falling property values nationwide. Nobody will refinance a loan for a home that does not appraise.
* If the seller has a decent amount of equity in the home, it may be a good time to try to refinance. Even if payments have been missed, and have dropped, refinancing may be an option. Albeit, not a good one, because whatever the loan product, the seller will likely face higher interest rates. Loan terms usually range from 2% to 10% origination points (each point equals 1% of the financed amount). The seller can expect 10%+ interest rates over the repayment period and have a substantial prepayment penalty imposed (a penalty for paying and refinancing the note early). Nonetheless, there will be lenders that will refinance if equity exists.
Refinancing with FHA Secure Initiative
This Federal Housing Administration (FHA) program (valid in all 50 states) was created to help homeowners with adjustable rate mortgages (ARM) in foreclosure. Qualified candidates will be eligible for the program, which will provide a fixed interest rate loan product. It is important to note that the qualifying terms are evolving. The initial terms set forth to qualify for the FHA Secure Program are itemized below:
1. A history of on-time mortgage payments before the teaser rates expired and the loans reset, if late payments occurred they were AFTER the ARM rate reset.
2. Interest Rates must have or will reset between June 2005 and December 2009.
3. 3% Cash or Equity in the home.
4. A sustained history of employment ; and
5. Sufficient income to make the mortgage payment.
6. Currently on a NON-FHA ARM.
7. You can prove the adjustment date
8. Maximum loan amount of $417,009
For detailed information on this topic, go directly to FHA's website:
http://www.fha.gov/about/fhasindqa.cfm
Strategy 2: Reinstatement
Catching up with the past-due amount and bringing the account current will reinstate the loan. The amount of penalties, late charges, and other fees will depend on how far behind they re on payments. If the property is more than 90 days past due anticipate adding about 1% or more of your mortgage balance as the result of late fees, penalties, attorney fees, appraisal fees, amongst other expenses.
For example, if the seller is six months behind and the mortgage payments (principle and interest) are $1,000 they will be required to pay $6,000 plus miscellaneous fees. If the mortgage balance is $200,000, late fees, legal fees and other fees will likely total 1% of the mortgage balance, or an additional $2,000 for a total repayment of $8,000.
Often lenders will allow rolling the additional fees into the back end of the loan. Instead of a mortgage balance of $200,000, the new balance will be $202,000, using the above scenario. If the lender agrees to such terms the loan will have been reinstated and initial loan terms take effect.
Strategy 3: Forbearance
Forbearance agreements are designed to delay foreclosure, as long as the terms are followed. In general, they are good for a short-term fix and generally are not a long-term solution. They can be valuable tools for lenders at the first sign of trouble by providing the borrower additional time to attempt to solve their financial problems.
The typical forbearance agreement places the delinquent amount on top of the monthly mortgage payment. As soon as an agreement is reached (may or may not be in writing) payments will need to be commenced per the specified start date. A simple example would be if the total amount past due is $6,000, they will be allowed to pay an additional $500 (added to your normal payment) for 12 months. Forbearance plans can go as long as 36 months.
A less common form of forbearance is a temporary hold on foreclosure proceedings with an agreement that allows the property owner to temporarily pay less than the full amount of their mortgage payment (or nothing at all). A common reason lenders consider such forbearances is when the property owner can demonstrate a windfall of money is coming via a bonus, tax refund, insurance settlement or other source; providing they have enough funds to bring the mortgage current at a specific time in the future. The lender will require the property owner to submit a written agreement under with their mortgage payments are reduced or suspended for the agreed upon period. At the end of that period, they can resume regular payments and bring the loan current through a lump sum payment or additional partial payments over a number of months (unless the loan has also been modified to make this unnecessary).
If the seller has multiple mortgages, they must either keep them current or go through the entire process with the additional lenders to prevent them from moving forward with foreclosure proceedings. Generally it is easy to agree to a forbearance agreement and often times much more difficult to fulfill one. It is a sad fact that the terms and conditions initially proposed by lenders are often formulated to fail from the beginning.
Strategy 4: Chapter 13 Bankruptcy
Chapter 13 permits the consumer(s) to:
* Stop Foreclosure
* Stop calls from debt collectors
* Pay unsecured debt down without accruing interest (student loans are an exception)
* Protect other assets
* Reorganize finances with the additional time
* Refinances debt and allows living expenses to be met before paying off creditors
* Allows homeowner to catch up on missed house payments
The moment a bankruptcy petition is filed with the federal bankruptcy court all debt collection activity is stopped. This automatic stay prevents lenders from moving forward with foreclosure. It is important to know that during the Chapter 13 proceedings, the lender will not discuss potential workout arrangements. Chapter 13 means making one cumulative fixed monthly payment, which may include entire car note(s) or small mortgage(s) (generally second or third mortgages) into your Chapter 13 plan.
Generally, the back house payment total, including penalties, will be added up and this amount will be required to be paid this sum to the lender over a pre-determined length of time. This payment is usually separate from the home loan payment and the Chapter 13 consolidation payment.
Under the typical plan, monthly payments are made to the court appointed bankruptcy trustee for generally 3-5 years. The amount of the monthly payment is determined by sever factors, such as amount of debt, ability to repay, and the extent of assets that exist. The bankruptcy trustee distributes the money to creditors.
