Home foreclosures are so prevalent nowadays that either you or someone you know is going through this. The American dream is to own a home. But what happens when you can no longer afford to pay your mortgage?
Facing foreclosure, now what? If you’re planning to let go of your home and your credit score is bad, how do you pass a credit check to rent?
It’s not the end of the world. But you do have to take action and make changes in the way you handle your finances in the future. You’ll have to change your mindset in order to survive.
I am not an expert in real estate law so I will refer to an expert, Suze Orman. She offers 5 Ways to Avoid Foreclosure.
Suze Orman’s Tips for Avoiding Foreclosure
1. Refinance – If you have an Adjustable Rate Mortgage try to refinance to a fixed rate mortgage.
2. Call your lender – As soon as you can’t make your mortgage payments, contact your lender to see if they can extend the foreclosure period.
3. Forbearance – If the lender allows you, you might be able to do a forbearance. This is an agreement between you and the lender to delay a foreclosure so that you can catch up with your mortgage payments during a certain period of time.
4. Loan modification – If you’re 30 – 120 days late in payment and have a good credit score and income, then this option may be for you. Call your lender to see if they will modify your loan, give you a lower interest rate, or extend your payment period.
5. Short sale – Suze says this is the last resort. When you owe more on your home than it’s worth, this may be your option. You have to talk to your lender to see if you can do this, which is sell the house for less than you owe them. But you may owe taxes on the difference. Do your own research to see if this applies to you.
Suze’s Orman’s Tips for Renting When Your Credit Score is Poor
Some people fight tooth and nail to keep their home. But sometimes, it’s time to let go and move on. You have to let go of your pride and do what you need to do.
Who cares what anyone else thinks? They’re not paying your mortgage. And there’s nothing wrong with renting.
If you plan to let go of your home, then what? I watched a Suze Orman show about a woman who wasn’t making mortgage payments. She asked if she should resume making payments even though she already missed several months.
Here’s Suze’s advice and strategy. She told the woman to not make anymore mortgage payments since she was so far behind on her payments and she hasn’t paid much of the principal amount.
Instead, she said to save the money she would use towards making mortgage payments to save up for renting an apartment. Since it may a few months to a year for the bank to foreclose on the house, the woman could save up enough for 6-12 months of rent.
Then when she goes apartment hunting and potential landlords look at her less than perfect credit, she could offer to pay 6 months or more of rent up front to make the landlord feel more at ease. Or she may pay a higher security deposit. Interesting strategy, huh?
Here’s similar advice that she offers to a couple who can no longer afford their home.
I can’t tell you exactly what to do in your particular situation. So please don’t take my word for it. These are just ideas to get your started.
Always do your research for yourself and talk to a professional before making such an important financial decision! And if you need budgeting help, check out Budgeting Made Easy.