Home foreclosure is a terrifying scenario for any homeowner, and especially for first-time buyers. During foreclosures, not only are your finances in jeopardy, but your entire livelihood could also be at stake if your household is your sole residence. Luckily, here are some simple tips to help you avoid this unfortunate outcome.
Do Not Become Your Debt:
Before we move into the topic of money management advice on how to most effectively handle your mortgage, it is crucial to understand that you are not your debt, and therefore you should not let it consume your mental wellbeing. While this may seem like an obvious statement, according to a recent study by researchers at the University of Pennsylvania School of Medicine, up to 60 percent of homeowners dealing with foreclosure begin experiencing a negative impact on their psychological wellbeing.
Furthermore, mortgage troubles have often been linked to causing or influencing depression in adults. All of this negative energy has a detrimental effect on one’s ability to best handle their finances, so before we jump into handling your money, it is best to understand that you are a human being undergoing one of the most common issues in modern society – debt – and therefore you are not alone; if you feel like your mortgage is becoming too much to mentally bear, care for yourself first before interacting with your finances and property.
Organize, Organize, Organize:
Benjamin Franklin once said, “for every minute spent organizing, an hour is earned.” Take time to carefully determine the numbers associated with your mortgage. What was the original cost of the mortgage (principal)? How much have you currently paid back? What is the remaining balance? What is your interest rate? Over what period are you expected to pay this back? Have you defaulted on a payment plan? If so, why? Have you addressed the issues that resulted in a missed payment? If not, organize appropriate steps to do so. All these questions and more can help you become better prepared to tackle your debt.
Formulate a budget. This budget should include everything paid by your income and not just the money spent on your home. Keep an eye out for any money being spent on excess. Even if you are meeting your payments for your loan on time and in full, money saved by not indulging in luxuries can be used in an event where liquidity is required and can help better ensure that you are always prepared to meet your payments in a timely and precise manner.
Pay Attention to the Market:
If you are still fighting to keep your home but paying back your loan is becoming increasingly difficult, then you may want to consider refinancing your loan. Refinancing your loan is issuing a new loan on top of your existing mortgage. This newer loan essentially pays the remaining balance of your original loan while extending different loan terms to you as a homeowner. Often the newer loan involves a lower interest rate due to improved credit scores. The new loan could also involve different contingencies, such as a different payment timeframe.
Be sure to pay close attention to all the nuances involved in your refinanced contract before agreeing to it. You can even look over the details with a certified financial consultant to best protect against any lenders attempting to take advantage of you. As always, the more knowledge you have prior to signing an agreement, the better.
Sell as a Last Resort:
If you are certain that you will be unable to keep the home and avoid foreclosure, then you may consider selling the home. In this case, it is strongly recommended that you invest in a professional retailer. Additionally, before listing your house for sale, ensure that your house has fully met its retail potential. There are many cheap and effective ways to maximize the value of your property. Some of these projects include repainting the interior and exterior of your home, improving energy efficiency, gardening, repairs and maintenance, and so on. Even tasks as simple as cleaning and sprucing up the lawn can increase the value of your home. For best results, consult professionals in your area.
The Power of Emotions:
Do not underestimate the influence an emotional connection can have. Lenders are people just like you. If you are unable to pay your mortgage due to a personal situation, try communicating this with your lender. In many scenarios, a lender has extended the payment due date to help the homeowner out of nothing more than sheer compassion.
If you can stick to these tips and keep a positive outlook, then you will surely be able to effectively manage your debt, and of course, avoid foreclosure.
Eric Lawrence Frazier, MBA
President and CEO
NMLS #461807 CalBRE #01143484