How to Protect Yourself from Home Foreclosure
Buying a home is an exciting milestone. For most people, a home is the biggest, most important purchase they will make in their lifetime. As optimistic and confident as one might feel having crossed this threshold, it’s important to know homeownership comes with both responsibility and risk. The reality is that millions of homeowners have ended up in foreclosures. Most of these people bought their home with confidence, never thinking they’d be a victim of foreclosure. As a potential buyer or a current homeowner, there are specific things you can do to protect yourself from foreclosure. Let’s take a look at what you can do to minimize risks and what to do if you’re heading towards foreclosure.
How Does Foreclosure Happen?
Most homes are subject to foreclosure after owners default or stop making full payments on their mortgage. Often, this happens because owners overextended their finances by buying more home than they could afford. Correspondingly, lenders have also loaned to unqualified buyers, awarding them loans larger than they could afford. This practice was common before the recession, as lenders didn’t verify an applicant’s income before lending. This led to many homeowners ending upside down in their mortgage—owing more than their home was worth.
Other times, owners default because they’ve been hit financially due to unexpected life events, such as major medical bills or the loss of a job. As you can see, there are many reasons why homeowners default on their mortgage loans.
No one likes to think about facing foreclosure, but knowing the risks and what you can do to protect yourself is key to staying current on your mortgage. Before buying a home, reasonable advices suggest buying a less expensive home than you qualify for. Buying a home at the maximum amount of your loan may stretch your finances too much, once you add in additional repairs, insurance, utilities and ancillary costs. A solid rule of thumb is to aim for the total of your home-related payments to be no more than 25-30% of your income. Also, be sure to establish and maintain an emergency fund of at least 6 months expenses to fall back on during unexpected life events.
If you already own a home and are struggling to make payments or are in upside down on your mortgage, it may seem like walking away is your best option. However, walking away will hold major implications for your credit. It will hurt your ability to buy or rent another home, open credit cards, borrow on another loan or even qualify for a job. If possible, hold onto your home until it regains in value and then sell. If you need to move, consider renting to a tenant to make up for the loss. Additionally, if you must sell, talk to your lender about short sale approval—a scenario in which the bank allows you to sell your home for less than you owe. This is not ideal for either party, but may be less harmful to your credit than a full foreclosure.
If you have fallen behind on your payments and don’t think you can catch up, talk to your lender right away. Communicating with them on where you are financially, as well as discussing your short sale options, is far better than avoiding the situation altogether until it is too late. Also, do not hesitate to contact an attorney experienced in foreclosures. They may be able to direct you to other options than foreclosure and help you stay in your home. Contact Bartifay Law today in Murrysville, Pennsylvania for professional foreclosure services.