A better fix is a mortgage modification with your existing lender. This is when the terms of your existing mortgage are altered to produce a lower monthly payment. In essence, it is just like a refinance, but your credit and equity are not a major determining factor, like a refinance. In most cases, the interest rate is lowered and the term of the loan is re-amortized to a 30 year fixed rate. In some cases, the principal loan amount is even lowered to reach the target payment.
In some cases, simply asking your financial institution for a loan modification will work. But more often than not, you will need to hire a professional bargainer to work on your behalf. When you hire a professional, make sure you do not pay money up front, or if you do, it is placed into an escrow account until the process is complete. If you do not get results, you should not have to pay for their services! Do your homework and be careful not to get taken advantage of. New laws are in place to protect homeowners, but criminals will always be there to steal your money if you allow them.
When working with your financial institution, you will have to complete a loss mitigation package when attempting your mortgage modification. This will help them ascertain your qualifications. This is where a professional will come in handy, since getting rejected can be final. It is important to submit a package that is thorough and can be approved without delay. You may be asked to provide proof of income, as you did when you obtained the original loan. Whether or not things have changed with your income is one of the things that the financial institutions will look at.
If the value of your home has fallen and you are “upside down” in your mortgage, then you need to decide if keeping your house is even the best decision. As I said earlier, you may qualify for a mortgage modification with a principal reduction, but selling the home may be your best option. When you are upside down in your mortgage, a short sale can be an easy way out. A short sale is when the house is sold for less than the payoff amount and the lender forgives the remaining portion.
Short sales can be tricky though, because your lender will not easily agree to this solution and may pursue a deficiency judgment after the home sells. It is very important to get your judgment in writing and to make sure they waive their right to pursue this deficiency judgment at a later time. We never recommend homeowners attempting a short sale on their own. Professional short sale negotiators or real estate agents specializing in this type of sale are available at little or no charge to the homeowner, so take advantage and make sure your rights are protected.
Regardless of what you go with, it is important to know that you have options and letting the home to go to foreclosure is never a good idea. Your credit will be tainted for years to come and purchasing a new home will be virtually impossible until you have recovered. Do not be afraid to ask for help or hire a professional to help you navigate these rough times.
Nick publishes articles on the ForeclosureFish website to provide foreclosure help and information to property owners in need of assistance. The site examines various ways to save a home, including deed in lieu of foreclosure, filing bankruptcy, short sales, defending foreclosure in court, and others. Visit the site for an e-book explaining the basics of foreclosure and how to stop the process: http://www.foreclosurefish.com/
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