What are my options to refinance?
When facing foreclosure, the most logical option is usually to refinance. You can extend the loan term, get a lower interest rate and even pull out some cash that you can keep on hand in the event of an emergency. Unfortunately, it's rarely this simple because usually, homeowners who are facing foreclosure are experiencing severe financial difficulties.
Often, the homeowner has already missed multiple monthly payments and there's a good chance that those financial troubles have caused them to miss payments on other bills, such as credit cards. These issues will cause homeowners to have a lower credit score, with recent negative reports. This situation alone makes it challenging to refinance. Now, combine this with the fact that most lenders require a homeowner to be current on their mortgage to refinance, and you end up with an impossible situation.
But there are some other options that you may want to consider if you cannot refinance during a foreclosure. Consider a few of these alternatives.
Negotiate With Your Lender
Contrary to popular belief, your lender may not be all that eager to foreclose on your home, particularly if you lack equity (making it more likely that the lender will suffer a loss, even if they foreclose and re-sell your property.)
Foreclosures are costly for the lender, as they must dedicate staff to the foreclosure process and they can face lots of court and legal fees too. It's time-consuming, expensive and plus, most lenders already own (or will soon own) hundreds or thousands of other properties. The reality is that the mortgage companies rarely recover all of the money that they're owed on a property. So in many cases, it makes more sense financially to work with the homeowner.
Most lenders have programs for homeowners who are behind on their home loan payments and facing foreclosure. They may be willing to “bend” if you have an experienced negotiator, like a foreclosure lawyer, working on your case. Also, if you've been with your lender for many years and have a good track record, they're usually more apt to work with you.
You can maximize your chances of seeing a positive resolution in your favor if you start working with the lender early in the process, as soon as it becomes evident that you're going to miss a payment. Of course, many don't take action until they're in a deep financial hole, but even if you've missed several months of payments, there's a good chance your lender will still work with you.
A few avenues that you may pursue include:
Mortgage Modification/Restructuring
With a mortgage modification or restructuring, you typically keep the same interest rate and basic terms of your loan, but the repayment timeframe or the monthly payment may be altered to add on the money that you owe due to missed payments.
Forbearance
With forbearance, your lender approves a “pause” in pre-foreclosure proceedings while you get a new job, liquidate assets or make other changes that you need to continue paying your home loan. This is most suitable for homeowners who are in a bad financial situation at this precise moment but have some option for getting into a better financial situation within the immediate future (i.e. the next one to three months).
Many lenders also offer their in-house programs which may include a combination of forbearance, loan modification, and other measures. Again, the sooner you begin working with your lender, the better your chances of saving your home.
Government Foreclosure Assistance Programs
There are a number of government programs and privately-sponsored foreclosure assistance programs that you may be eligible to pursue. It may be possible to refinance through one of these programs (when refinancing using normal avenues would not be an option.) Some of these programs also provide you with other offerings that let you reduce your mortgage payments and get current on your loan.
It is important to use caution, though, because there are many scammers and predatory lenders who try to take advantage of homeowners who are desperate because they're facing foreclosure.
Avoid Foreclosure By Renting the Property or Taking on a Roommate
Taking on a roommate or renting may be viable, especially if you have a relatively low mortgage payment (and another location to stay, if you opt to rent the entire home).
Having an extra income may serve as a way to pull in the money you need to start covering your monthly mortgage payment and paying back the money you owe for the missed payments. This may work well if you've just begun to fall into financial trouble and are going to face a foreclosure if you do not take action.
The key is that you will need to become current on your mortgage before the foreclosure process is completed OR you will need to negotiate with your lender so you can arrive at some agreement that will allow you to halt the foreclosure process while you remedy the situation.
Sell Your Home and Avoid Foreclosure
If you have encountered financial troubles and do not see any viable way to recover to the degree that would make it financially possible to remain in your home, then you may choose to sell your property and downsize.
If you have the time and the equity, you may decide to sell your home via a traditional transaction. It's also possible to work with a real estate investor, who often pays cash and offers a fast closing (although the total amount paid on the property is typically less than what you would get on the open market. But you also save on other expenses, such as real estate agent commissions.)
If you lack any equity in your home, it may make sense to offer a deed in lieu of foreclosure, essentially turning over your home to the lender in exchange for a bit less damage to your credit history. A short sale may be another option to consider.
Challenge the Foreclosure
In some cases, you may have legal grounds to challenge the foreclosure in court. Many new laws allow consumers to take action if they've been the victim of a predatory lender or other unethical lending practices. So it may be worth consulting with a foreclosure lawyer to see if you have sufficient legal grounds to take action.
Halt Foreclosure by Filing Bankruptcy
A bankruptcy filing will typically halt foreclosure proceedings, and while this isn't a direct solution, it may serve as an indirect solution. Bankruptcy could place you in a better financial position if you can discharge some of your debts, leaving more money to pay for your home loan.