With foreclosures occurring at record rates, some homeowners are scrambling for ways to keep their homes. Layoffs, rising home loan interest rates and soaring heating fuel and gasoline costs have many homeowners at a loss on how to pay their bills. Unfortunately, some people are having a hard time paying their mortgage because of the other bills looming over their heads. Once a mortgage payment is 120 days late, a financial institution qualifies that mortgage as being in default. If your mortgage is in default, you are in danger of losing your home.
The good thing about lenders is that they really do not want to take your home from you. A default is a costly event for banks and other mortgage lenders. They are generally willing to work out an affordable solution with homeowners. If this doesn't work out, there is still a foreclosure/bailout mortgage that may be an acceptable alternative.
These mortgages are available to those who have credit scores over 500 and who have a mortgage small enough that there is equity of 25 percent available. If your home is valued at $200,000, a foreclosure/bailout loan will not be more than $150,000. In general, only 75 percent of the home's value can be borrowed against with any foreclosure loan. Providing you meet these two requirements, you may be able to prevent a foreclosure. These mortgages can be effective almost immediately after default papers are filed.
Most default or bailout loans are based solely on the equity you have in your home. If you cannot pay your foreclosure loan, the company makes back money in the equity that is already available. If your home is worth $200,000 and you owe $100,000 on it, a foreclosure/bailout mortgage company does not need to worry about losing money. If you fail to pay, they have $100,000 to gain simply by selling your home.
Bailout mortgages do charge a higher interest rate. Similar to a refinance, you are simply taking the amount you owe for the total mortgage plus any late fees. This new amount is then refinanced with the higher interest rate and you are able to start over. For a default bailout mortgage to work, you must be able to afford the payment on this new mortgage loan. With the higher interest rates, this may be hard to do. Shop around for a rate that works for you!
When you take out this type of loan, make sure you make your payments on time. After a year passes, you can then look into refinancing for a lower interest rate. You just need that year's time to boost your credit rating. Within a year, you can raise your credit score by a good deal providing you maintain regular, on-time payments. You will be required to show:
- Paper work regarding the foreclosure
- Pay stubs
- Tax returns for the past two years
The bank will also want to do an appraisal to learn your home's value. A credit report to show your outstanding debt will also be ordered.
Most of these loans require you to pay points. If you cannot afford the points, you will be facing a prepayment penalty, meaning that if you pay the loan back early, you will pay a fine. In some states, a prepayment penalty is illegal, so it is advisable to speak to a local bank or mortgage financial institution to find out how the system works in your state.
Other types of foreclosure loans utilize the "lease and buy back" program. In this case, you lease your home from the bank for up to a year and then sell you back your home a year later at the same price the bank purchased it for. With this type of program, you have year to get your finances back on track. In the meantime, the bank is making money because they receive that extra year of payments that do not cover your interest or principal for that entire twelve months.