During the subprime mortgage crisis of 2008, thousands of people lost their homes when they couldn’t keep up with their loans. These were mostly people who shouldn’t have qualified for loans in the first place – the problem was not that the borrowers did anything wrong, but rather that the lenders did. And now, because of the COVID-19 pandemic and resulting recession, we could be facing another foreclosure crisis without proper intervention. On the other hand, the right support coupled with savvy steps by homeowners could keep homeowners above water.
If you’ve reached the point at which you’re worried that loss of income or other challenges could force you into foreclosure, there are a number of things you can do to protect yourself, your finances, and your home. These 3 strategies each offer a way around foreclosure, not just for a few months but in the long-term.
Sell For Cash
One of the best ways to avoid going into foreclosure when struggling with your mortgage is to sell your house for cash. This often means accepting a lower price than you would if you sold through a broker, but it still offers a number of advantages. In particular, there are many cash buyers who will purchase your home, even if you’re actively behind on your mortgage or the property isn’t currently habitable.
If you are behind on your mortgage payments when you head to sale, you do need to be aware that this is what’s called a short sale. In a short sale, you don’t have all the money necessary to pay back your lender, so you’ll still be behind, but substantially less so. Though not ideal, this could be the boost you need to avoid more serious financial consequences.
Seek Out Forbearance
If you’re a few payments behind on your mortgage payments, but you feel confident that you could catch up with a little time, another possibility you might be able to take advantage of is mortgage forbearance. In forbearance, your lender essentially offers you a break in your payment schedule. This will give you time to catch up on your payments without more fees piling up, and allow you to keep you house.
Unlike forbearance, which puts your payments on pause, reinstatement can be a little trickier to navigate – at least from a financial perspective. That’s because, if your lender grants you reinstatement, then you’re given until a certain date to pay whatever is due, including any late fees and penalties. That means you’ll need to successfully save up the full amount owed within a few months and keep up with your other payments. Reinstatement can be a good option if you hit a temporary bump in the road and are already on the road back to a more stable financial situation, but otherwise may be too challenging.
When you’re at risk of foreclosure, it can be hard to repair the situation without help, but you don’t have to accept losing your home as the only possible outcome. Consult your lender and talk to a financial adviser to get a better sense of your options – and be ready to accept a suboptimal outcome. You may not be able to save your home, or even recoup all of your funds, but you can protect your credit and stave off the worst-case scenario.