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Homes Foreclosure Financial Tips and Options

2017/11/10

If you are facing possible foreclosure, you want to be aware of your choices and actions you can take to keep a foreclosure from hurting your credit. Bankruptcy, loan modifications and some government programs can stop foreclosures. Knowing your options and weighing the ramifications of each will assist you in making the wisest choice. Let’s look at some of our options in more detail.

The most common types of bankruptcy is a Chapter 7 and Chapter 13. Let’s talk about the Chapter 13. This type of bankruptcy can stop a bankruptcy and even dissolve a 2nd mortgage if the value of the home has decreased substantially in value. The bankruptcy judge will restructure you debt and allow lower payments for all your unsecured debt. If your 2nd mortgage is considered “unsecured”, the courts have the option to absolve this debt altogether.

Bankruptcy should be used as a last resort as this will not change your 1st mortgage payments, your credit history will have a negative effect for 10 years and you’ll find yourself explaining to other creditors when applying for loans, etc. To say the least, this could cause financial frustrations for several years ahead.

Refinancing is another option to possibly stop a foreclosure from happening. Talk to your lender in detail before applying for a refinance. They have certain and strict guidelines for refinancing and you want to be sure ahead of time that you are eligible to do a refinance. There are also several government programs available that might be worth doing some research before making this important financial decision.

One consumer option might be a loan modification to your existing mortgage. The loan modification loan can change the terms of your loan, a reduction in your APR (Annual Percentage Rate), lengthening the time to pay the loan off, converting to an “interest only” loan and possibly even changing the principle amount of the loan. This type of loan is much more attractive than filing for Chapter 13 bankruptcy.

The Obama “stimulus package” focuses on loans owned by Fannie Mae or Freddie Mac. The rules encompassing the requirements for the consumer are as follows:  Your DTI (Debt to Income Ratio) must not exceed 37% of your monthly net income. In other words, your monthly mortgage payment has to be 37% or less than your total monthly income. Your lender can reduce your DTI by offering assistance in lowering your interest rate and extending the length of your loan. If this still places the consumer above the 37% threshold then the bank or lender may possibly reduce your principal loan amount.

Although sometimes foreclosures can not be avoided at least there are some alternatives to assist the consumer. As a consumer exhaust all your options before making this important decision in your life.




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