If you have missed a few mortgage payments, a foreclosure may be on your mind. However, there are several options you have when you can no longer afford your house. First, and probably the most important step is to contact your lender. By letting them know that you are aware of the problem and are actively seeking a solution can go a long way. The earlier you reach out to your lender the better off you will be in the long run. Once you speak with your lender, they will layout your best options.
Sale or Rental
If your home is valued at more than you owe and you are currently up to date on mortgage payments, you can try to hold out for a potential buyer to swoop in and save the day. However, this option only works if you are up to date on your mortgage payments but you are anticipating problems in the future. Another option you can try is to rent out the home to help cover your mortgage payments until the home sells. Just be sure that the house is priced to sell from the start so it doesn’t sit on the market for long.
Short Sale
On the flip side, if the home has fallen in value and is priced too low that it won’t cover the mortgage, you might have the option to conduct a short sale. This basically means that the lender agrees to accept less than the amount the borrower owes.
When a short sale is agreed upon, a specialist brokers a deal with the mortgage lender to sell the home for what the market price is. If the amount of the sale is lower than what is owed, the lender gets the money and releases the remaining debt.
Deed in Lieu of Foreclosure Agreement
This is a transaction between the lender and the borrower that ends the home loan. Both parties agree to avoid a lengthy foreclosure proceeding by the borrower voluntarily turning over the home’s deed to the lender. Then the lender will release the borrower from any liability relating to the mortgage.
