What is a foreclosure of a home loan? A foreclosure happens when there is a failure to make monthly payments on a home loan. What is a foreclosure of a home loan? How much warning does a homebuyer have before...
What is a foreclosure of a home loan? How much warning does a homebuyer have before a lender starts foreclosure proceedings? What can be done to prevent foreclosure, in case something unexpected might happen to prevent a homebuyer from making payments on his loan? Those are some of the questions you might have as a potential homebuyer. After all, you don't want to take out a loan to buy a home, only to watch as your home is repossessed by a bank and sold if you can't make the payments.
Under foreclosure, the holder of the loan or lien will institute a court procedure to take possession of your house and then sell it to recoup his financial loss at your not making payments on your loan.
"Typically what leads up to foreclosure is the borrower not making the regular required monthly payment for a period of three or more months," explains Doug Perry, who has worked in the Consumer Markets Division for Countrywide Home Loans for 16 years.
"During those three months the lender was attempting to work with the homeowner to get the loan current and have that work out.
"Really it is as a last resort that foreclosure would take place," Perry adds. "Depending on the state, once the homeowner is three or more months in debt, the foreclosure process at that point could be relatively rapid. There could be a longer period of time where the borrower can reinstate and either get current or pay off a loan in its entirety."
According to a website of the U.S. Department of Housing and Urban Development (HUD), a potential homeowner can help avoid foreclosure by making certain he or she is ready to buy a home before actually taking out a loan.
The website states that a potential homeowner might be ready to buy a home if he can answer yes to the following questions:
-"Do, I have a steady source of income (usually a job)?
-Have I been employed on a regular basis for the last two to three years? Is my current income reliable?
-Do I have a good record of paying my bills?
-Do I have few outstanding long-term debts?
-Do I have enough money saved for the down payment and closing costs?
-Do I have the ability to pay a mortgage every month, plus other home ownership costs, such as maintenance, repairs, and utilities."
It is also a good idea for those considering buying a house to plan a monthly budget of expenses and income.
If things do happen beyond your control, there are things you can do to avoid foreclosure. Contact your lender immediately to let him know if something has happened to change your financial circumstances, such as the loss of a job, unexpected medical expenses, or some other major event.
First contact your lender immediately to let him know if payments will be late. Don't ignore letters or phone calls from a lender.
Forbearance might be possible for you, if you have an unexpected financial circumstance. In forbearance, a lender might allow you to not make payments for a brief time, with the understanding that you will do something at a later date to make payments current.
A lender might also allow you to add repayments to your current payment schedule, until your loan payments are current. Some lenders will allow you to add your past due amount to the current loan and to refinance the amount over time.
It is also possible before an unexpected event occurs to buy Mortgage Payment Protection Insurance that will pay your mortgage under certain unexpected circumstances. There are advantages and disadvantages to the insurance, and alternatives to the insurance, and it would be beneficial to talk with a financial expert before making a decision.
If you are thinking of buying a house, you should first be certain you are financially prepared for the expense. There are things you can do, however, before or after unexpected expenses to prevent foreclosure.
