In Foreclosure and Need to Refinance – 5 Tips

Having your home in foreclosure is an uncomfortable and very negative feeling. It can feel like one’s financial means are slowly slipping away. For most homeowners, their home represents their ability to accumulate wealth, have their own secure place to live, and have a center around which to raise a family.

To start a foreclosure, of course, you must be behind on your mortgage payments for at least 2-3 months. People can get into foreclosure for a variety of reasons, most of which have to do with having limited cash flow. Losing your job, dealing with unexpected medical bills, and other life problems can make it almost impossible to pay your own mortgage.

One way out: refinancing. However, many lenders will object to a refinance, especially if the home is “underwater” (i.e., worth less than the amount of the outstanding mortgage balance), making selling the home not an option. a way to pay off debt. .

If you’re saying to yourself, “I’m in foreclosure and I need to refinance,” here are 5 tips on what to do next:

1. If you are simply behind on payments but not in foreclosure, start refinancing early:

If you’re a little behind on your payments but haven’t advanced to foreclosure yet, consider a loan modification program. For example, if you have a mortgage backed by Freddie Mac or Fannie Mae, you may qualify for their Home Affordable Modification Program (HAMP).

This program helps homeowners who fall behind on their mortgage payments; Please note that certain restrictions apply. The program reduces the amount of the borrower’s monthly payment so that the mortgage payment does not exceed 31 percent of monthly income.

2. For people already in foreclosure, consider the Affordable Housing Foreclosure Alternatives Program:

If you’ve moved toward foreclosure and have a loan backed by Freddie Mac or Fannie Mae, you may qualify for a Housing Affordable Foreclosure Alternatives Program (HAFA).

This program allows the borrower to sell their home for less than the current value of the mortgage (this is called a short sale). The proceeds can be used to pay off the loan. Or, if the house cannot be sold, the owner may qualify for a deed in lieu of the deed, which means the deed to the house can be transferred back to the lender and the debt is forgiven.

3. Loan modification is the way to go if you need to lower your payments:

What if you don’t have a loan from Freddie Mac or Fannie Mae? You may still qualify for loan modification. In this case, the servicer (lender) may choose to help the borrower sell the home through a pre-foreclosure sale. However, a short sale (as described above) may be possible.

4. Ask your lender about a “short refinance”:

Another option is to ask your lender about a “short refinance.” In this case, the lender agrees to refinance the home for a new principal loan amount that is less than the old/current loan amount, thus forgiving some of the debt. The new loan may also be offered at a lower interest rate.

5. As a last resort, consider a hard money loan:

Finally, in some cases, the borrower may seek what is called a hard money loan. This is where a private individual, either a family member or someone else, lends the family money (often at a high interest rate) on a short-term basis so that they can get back on their feet and maintain their payments.

Consider these 5 tips on what to do if you’re in foreclosure and need to refinance your home loan.