There are many people facing foreclosure today. And statistics show there could be many more foreclosures coming in 2010 and 2011 throughout the United States.
The next wave of mortgages that are expected to create more foreclosures are the Option ARMs. These are loans that were issued to homeowners, giving them an option of the amount they would pay each month. They have a choice of paying the interest only payment, the principal and interest payment, or an option payment. The option payment is the lowest monthly payment and is less than the interest payment. The difference is then added to the back end of the loan, causing the balance due to increase each month. The result is that many homeowners now owe more on the mortgage than they originally borrowed.
Many of the Option ARMs had a 5 year period before the loan would become an amortized loan. At that time, the payment will increase. So when you think about it, if the homeowner was making the option payment, the lowest amount, they are going to facing much larger monthly payments when the option period expires. In some cases, their monthly payment will double.
Many of these homeowners now owe much more than the house is currently worth. And when they stop making payments, the home is heading toward foreclosure.
So, what can you do if you are facing foreclosure or think you will be in the coming months? You have to look at your alternatives and work with a professional to decide the best solution based on your individual situation.
Let’s look at some of the alternatives.
1. Loan Modification
A loan modification is a negotiation with your lender to create new terms for the existing loan. In some instances, the lender may adjust the interest rate, lower the monthly payment, or reduce the principal amount. In order to qualify for a loan modification, the homeowner must prove they have the income to support the new monthly payment.
2. Short Payoff Refinance
A short payoff refinance means the homeowner is going to refinance the mortgage, creating a new mortgage. They need to negotiate with their current lender, asking them to accept a payoff of less than the amount that is currently owed on the mortgage.
3. Short Sale
A short sale occurs when the house is sold for less than the amount owed to all lienholders. This involves a negotiation with each lien holder, asking them to accept less than what is owed. A short sale will not occur without agreement from all lienholders. Keep in mind that with a short sale, there is a sale of the house and the homeowner will have to find a new place to live.
Many homeowners will file bankruptcy to avoid foreclosure. When a bankruptcy is filed, this will stop the foreclosure process and the homeowner will be able to stay in the home. Many bankruptcies fail because the homeowner is unable to make the court required bankruptcy payments and the home ends up back in the foreclosure process.
5. Sell the House
Not all homeowners in the foreclosure process owe more than the house is worth. There are many homeowners who owe less than the house is worth and are facing foreclosure due to loss of a income, illness, death in the family, divorce, and many more reasons. These homeowners can sell their home before the foreclosure sale and may be able to pull out some of the equity when the house is sold. This allows them to avoid foreclosure and move on with their life.
Keep in mind that there are alternatives for foreclosure. Contact a local Distressed Homeowner Specialist to find out what choices you have and determine the solution that is best for your situation.