If your mortgage payments are getting harder and harder to afford, you might worry about the risk of foreclosure. The good news is if you start now, before you are late on your payments, you can avoid foreclosure with a refinance. You cannot delay, thinking that things will work themselves out, though, you have to get in contact with your current lender or another lender that you wish to refinance with before your credit suffers from late mortgage payments and the lender starts foreclosure proceedings.
Sticking with your Current Lender
You have several options when you want to refinance to avoid foreclosure, but sticking with your current lender is often the preferred choice. Many borrowers prefer to stay with their current lender because they feel like there will be less of a headache to get the loan processed. The lender has the same goal you do – to reduce the risk of foreclosure. Believe it or not, the lender does not want to take possession of your home. This costs them money and takes their resources to sell the home, which depletes their profits. Because the lender wants to keep you in the home, they may have more programs available to you than you realize.
The trick is to start talking to them right away. Do not wait until you are two or three months behind on your mortgage payment. Let the lender know right now that you are experiencing trouble making your mortgage payments on time. Even if you have not had a late payment yet, the lender needs to know that you are having difficulties.
The sooner the lender knows what is going on, the sooner they can find a program for you. Sometimes they can just modify your loan or create a repayment plan that is affordable for you. Other times, they may put you in an entirely new plan with a lower interest rate and payment to make it easier to afford your loan. You have more options when you act quickly, though, because your credit score will not be affected by late mortgage payments just yet. If you wait until you have one or two late mortgage payments, your credit score could be too low to qualify you for a new loan.
Changing Lenders to Avoid Foreclosure
It is also possible to change lenders. If you do not like the programs your current lender offers or you do not want to let them know about your struggles, you can shop with other lenders. Again, the quicker you start this process, the more options you have. You should still tell the new lender your exact situation so they can help you avoid foreclosure too. If you do not tell them you are on the verge of making a 30-day late payment or even that you have difficulties making ends meet each month, they cannot help you find the most affordable program.
When you let the lender know what you are experiencing, they can go over every option with you. Sometimes FHA loans offer the most affordable refinance because of their lower interest rates and closing fees. You have to figure in the mortgage insurance fee they charge each month, though. The new lender may also have other programs, including adjustable rate loans. These can be a good option because they give you an introductory rate for a few years. This rate is usually much lower than the fixed rate, which can help you get on track and save more money, helping you to avoid foreclosure in the future.
Provide Compensating Factors
The key to avoiding foreclosure is to provide the lender with compensating factors. If you go to a lender with difficult to pay mortgage payments, a high debt ratio, a low credit score and no assets, chances are they will not give you a second chance. If, on the other hand, you go to the lender with positive aspects to your loan application, such as a low debt ratio and steady employment for the last five years, they might be willing to find a solution to help you keep your home. The more compensating factors you can provide, the greater your chances of approval become.
Do Not Wait Until You Miss a Payment
The most important thing to remember is never to wait until you miss a payment. You need to act before it gets to this point. Because a refinance can take up to 8 weeks to process, you need to act right away. Once you have one late mortgage payment, your credit history is marred and your credit score suffers. This can make it difficult for lenders to find a program to fit your needs with the late payment being so recent.
Do not give up if you cannot afford your current mortgage. If you want to avoid foreclosure, talk to your lender or any new lender. Shop around and see what options are available to you and then act fast. The sooner you lower your mortgage payment, the more likely it becomes that you can avoid losing your home.