When to Start Packing Your Home
Since 2008, mortgage default notices have gone up 121% in places like San Diego County, according to the MDA DataQuick research firm. Owning a home is considered one of the quintessential “American dreams” and it’s hard to imagine going through the process of finding a new place to live. Yet in some cases, it’s best to default and walk away from the property. For instance, if you find yourself dipping into your savings constantly (or if you have no savings anymore), you need to downsize your life.
If you or your spouse has lost employment and no longer make as much money, you may have trouble meeting your mortgage payments. If you have one of those dreaded Adjustable Rate Mortgages, paired with skyrocketing interest rates and poor credit, then you may not get approved for a better deal.
When to Hold On
Some homeowners find that they are able to default on their mortgage payments for a few months, and then renegotiate the terms with their lenders. You may also look back at your original agreement and decide you were a victim of predatory lending. In that case, you can file a complaint with the US Department of Housing and Urban Development. Most of the time, it’s worth your while to look into resources, like the Homeownership Preservation Foundation, that specialize in mortgage counseling and loan modification.
Video: How to Avoid Foreclosure
Short-Term Effects of Defaulting
Once your mortgage payment is sixteen days over-due, your panicky lender will attempt to call you and a late penalty will apply (usually about 3% of your principal balance or $100 on a $300,000 home).
Once you’ve missed a month’s payment and the second month’s payment looks doubtful, more serious collection attempts begin. At this point, you may be able to make a partial payment to start catching up or the lender may demand you bring your account 100% current. After 90 days, you can expect some sort of legal recourse – either a call from an attorney or a foreclosure notice via certified mail. Collection costs and legal fees will begin accruing, on top of everything else you owe. Once you begin defaulting, the extra fees and penalties add up fast!
Your credit record will show your late payments and your score will continue to drop with each month you’re past-due. Some homeowners reported that their credit scores dropped as much as 100 points from one missed mortgage payment.
Foreclosure proceedings are a real headache. You’ll need to find a new place to live that will accept you, bad credit and all, and somehow gather enough money to pay first and last month’s rent, as well as a security deposit, for a new apartment.
Long-Term Effects of Defaulting
When you default and foreclose, you suffer the additional consequence of having destroyed credit for several years. On average, your credit score will drop by about 250 points in a foreclosure and that blemish will remain on your report for 7 years. Reestablishing credit will be difficult because creditors will view you as a risky borrower. If you manage to bounce back quickly and pay everything else in full and on-time, you may be able to restore your credit in 2-3 years’ time. Yet rebuilding credit can be extremely difficult. The emotional pains of foreclosure are tremendous as well because you will have to accept that you’ve failed at something fairly substantial. Saving up a new downpayment can be extremely difficult, especially if you’re dropping $500 - $1,000 on rent each month.
Default Timeline – When to Purchase another Mortgage
Most experts recommend waiting two to four years before buying a new home. According to the FHA, you may be approved with as little as 3% down. Hard-money lenders will sometimes give you a loan six months later with a 35% downpayment. Keep in mind that it’s in your best interest to wait until your credit score has improved (over 600) so you don’t wind up paying thousands of interest dollars on your new home.
Video: Ways to Avoid Foreclosure
Steps to Avoid Foreclosure
While you may not be able to avoid your current situation, you can steer clear of the long-term effects by taking immediate steps to stay in your home and rectify your debt.
First of all, do not ignore the problem! Read the initial correspondence sent by your lender, which will give you clues on how to proceed. Write a letter to your lender addressing the following questions: Why did you miss your payment? Can you back up your reason with documentation? How have you tried to resolve this problem? Is your problem short-term or long-term? What outcome would you like? What payment can you make?
See what you can do on your end to come up with the cash to make responsible payments. Maybe you’ll need to work over-time, get a second job or find a job if you’ve been recently laid-off. Another avenue for the newly jobless is to file for Unemployment Insurance, or look into government grants, which can help you summon a little extra money to help you through the dry spell.
Next, you may want to examine government resources available to you. Many Americans are in the same situation as you and with Barack Obama’s Homeowner Affordability and Stability Plan, you could be one of the 7-9 million families receiving help restructuring your mortgage. Look into the Hope for Homeowners (H4H) program offered by HUD to see if you’re eligible for government assistance. You may want to go through a lawyer or credit counseling agency if your own efforts are not fruitful.
Loan Modification Companies
Consumer Counseling
Bellevue, WA
1-800-355-2227
Consumer Credit Counseling Service of Orange County
Anaheim, CA
866-784-2227
Housing For Nevada
Los Vegas, NV
1-877-649-1335
Greenpath Inc
Tempe, AZ
1-800-550-1961
CCCS Central Florida
Orlando, FL
1-800-741-7040
JCVision and Associates
Hinesville, GA
1-866-883-4243
Long Island Housing Services Inc
Bohemia, NY
1-800-660-6920
CCCS of Greensboro
Burlington, NC
1-888-755-2227
Brothers Redevelopment Inc
Denver, CO
1-877-601-4673
New Hampshire Housing Finance Authority
Bedford, NH
1-800-649-0470
NACA of Dallas
Dallas, TX
1-888-297-5568
O.U.R. Federal Credit Union
Eugene, OR
1-877-279-2599
Human Development Commission
Caro, MI
1-800-843-6394
Fair Housing Contact Service
Akron, OH
1-877-376-6191
Quin Rivers Inc
Fredericksburg, VA
1-866-270-9737