If you are experiencing a long-term financial hardship, have fallen behind in your mortgage payments, and your home is worth less than what you still owe on it, you may think short selling your property is the only way to avoid a foreclosure. One of the main drawbacks to this often complicated and time-consuming process is that your house may foreclose before the sale can be finalized, at which point you're out of a house and have a stain on your credit record. Consider these four alternatives before deciding that a short sale is your only means of escaping foreclosure.
Start by getting help to determine the best option available to you based on an assessment of your current financial situation. The Department of Housing and Urban Development provides housing counselors free of charge to answer your questions and assist you in selecting the option that would best meet your needs. The counselor will also help you prepare to work with your mortgage lender to pursue the option you have chosen.
It may be that you just need to budget your income and resources more wisely to continue meeting your monthly payments. If budgeting isn't enough, you may be eligible for a repayment plan, refinancing, or loan modification in addition to short selling your home.
Your mortgage lender may agree to let you pay a past-due amount over time. This is accomplished by adding a portion of the total past-due amount to your mortgage payment. While this will increase your monthly payment, it will enable you to bring your payments up to date. Your mortgage counselor will help you determine how you might be able to cut back your spending in order to afford the increased monthly payment. When the past-due amount is paid off, your monthly payments will return to the level you were paying before the repayment plan took effect.
Refinancing your mortgage involves taking out a new loan and paying off the existing loan. The new loan will have new terms including a new monthly payment amount, interest rates, and repayment schedule. Homeowners often refinance to take advantage of lower interest rates which result in lower monthly payments. The Department of Housing and Urban Development offers refinancing to qualified homeowners via its Home Affordable Refinance Program or HARP. Even if you have little to no equity in your home, you may qualify to participate in this program.
If you aren't eligible for refinancing, your mortgage lender may agree to modify the terms of the existing loan to decrease your monthly payment. Loan modifications include reducing the amount of your monthly payment, extending the length of the loan, and lowering the interest rate.
A short sale may be your only option if you are unable to qualify for any of these alternatives. Just be aware that your mortgage lender may require you to make a financial contribution to offset the loss the institution will incur as result of the short sale. That is why it's critical that you investigate all of the options available to you first, especially if you want to remain in your home.