Do You Recognize the 6 Early Warning Signs of Foreclosure?
If you pay any attention to the news, you’ve probably heard how high foreclosure rates reached across the United States over the past six years. While this rate is dropping, foreclosures are still a problem in many areas. If you’re struggling with housing debt, remember that foreclosure doesn’t have to be inevitable, especially if you pay attention and catch the problem early enough to get help.
The best way to deal with foreclosure is meeting the problem head on. If you’re afraid you’re at risk for losing your home, make sure you can recognize these early warning signs to avoid falling into a trap. There are ways to avoid foreclosure!
Warning Sign #1: Your income is reduced
If you’re facing a lay off or a reduction in your income, it will directly impact your financial condition and ability to make your mortgage payments on time each month.
Solution: Consider refinancing.
Warning Sign #2: You’re using savings for basic expenses
Savings should be reserved for emergencies, not monthly bills. This includes your mortgage. If you find yourself routinely dipping into savings just to pay living expenses, it’s a sign your financial situation is in trouble.
Solution: Analyze your budget and find areas to cut back.
Warning Sign #3: You’re living on the edge
Would a small drop in your paycheck or an unexpected expense like a car repair leave you unable to pay your bills? If so, you should be worried. It’s time to look at your budget and find ways to cut expenses immediately before you’re in hot water.
Solution: Analyze your budget and cut expenses.
Warning Sign #4: You’re ARM will reset soon and you can’t afford the new payments
Hopefully you pay attention to your home loan and see this change coming a mile away. Unfortunately, though, many borrowers are caught off guard when their ARM resets. If you have an adjustable rate mortgage that gave you teaser rates for the first few years, you need to be financially prepared for the rate reset and jump in your monthly payment.
Solution: Consider refinancing into a fixed-rate mortgage.
Warning Sign #5: You missed a payment
It’s easy to tell yourself that you’ll catch up next month, but this becomes more and more difficult. If an $800 mortgage payment is difficult to afford and you miss the due date, how easy will it be to come up with $1,600 (and a late payment) the following month?
Solution: Discuss a workout plan with your lender immediately. Most loan servicers have many options available to borrowers who are struggling. You may qualify for a loan modification or forbearance, for example.
Warning Sign #6: Home values in your neighborhood are dropping
If home values in your area are falling, you may end up owing more than your house is worth. This can be a big issue if you try to sell your home, or if you have an ARM about to reset. While this is the exact scenario that forced millions of homeowners into foreclosure in recent years, the good news is this trend is reversing.
Solution: Your best bet is refinancing your mortgage. Two popular options are the federal Home Affordable Refinance Program (HARP), available to qualified borrowers underwater on their mortgages, and the federal Home Affordable Modification Program (HAMP), which is available through mortgage lenders.
Don’t Sit Back and Let Foreclosure Happen!
If any of these warning signs describe your situation, don’t just sit back and wait to go into foreclosure. Being proactive can save your home and your credit rating, but you’ll need to put the work in.
If you want to keep your home, figure out exactly how much you can afford to pay towards your mortgage each month. Cut back any unnecessary expenses and free up money wherever possible. Once you know what you can afford to pay, try to negotiate with your lender for an affordable payment plan, or consider refinancing your mortgage into something more affordable.
Don’t be tempted to use lines of credit or your savings to try to save your home. While this may be a good option if you’re going through a temporary rough patch, it’s not a strategy for long-term security.
Above all else, remember you have options, as long as you catch the problem early. If you don’t, foreclosure will eventually become the only option you have left.