Most homeowners signing up for mortgages intend to complete the loan. However, unexpected circumstances such as job loss, closed businesses, high medical bills, divorce, and eroding property values may overwhelm borrowers with good intentions. Missing your mortgage payments by days or months isn’t a big issue. However, you might be risking foreclosure if you haven’t cleared the payments before the due grace period.
While different states have varying foreclosure rules and alternatives, homeowners should be proactive in making their payments. For instance, California introduced the foreclosure moratorium in California, which protected residents from foreclosures during the pandemic. Even though homeowners may entertain foreclosure in some situations, below are some reasons why you should avoid it.
You will lose your home
Losing your home is an obvious disadvantage of foreclosures. If you can’t service your mortgage payments, cover late payments, or find an alternative that eliminates possible foreclosure, you will definitely lose your property to the lender along with the Cambria countertops. As a result, you will have to move out, which is more challenging, especially if you have a family.
Being evicted from your home causes unimaginable emotional and financial turmoil. Finding a new home can be problematic for homeowners still battling financial problems that initially contributed to foreclosure.
Affects credit score
Foreclosures also have a significant effect on your credit score. Homeowners with foreclosed homes often find it difficult to be approved for a loan, credit cards, and other future financial products, including insurance. Though not certain, you can lose between 100 and 300 points from your credit ratings following a foreclosure. Your credit report will highlight the foreclosed property for the next seven years, making it impossible to qualify for a new mortgage for at least three years.
Emotional damage
Homeowners with foreclosed properties experience significant psychological and emotional damage. Homes are central to most people’s livelihood. Losing your home brings forth a lot of uncertainty, especially about rebuilding your finances and where you will live after. This can lead to anger, anxiety, and possibly depression.
Most homeowners perceive themselves as failures, especially if they have kids and dependents that rely on them. Feeling embarrassed after foreclosure is normal, but may lead to mental health issues.
How Can You Avoid Foreclosure?
Foreclosure is not always a good idea. The following tips can help homeowners avoid this challenge:
- Talk to your lender – You should contact your lender immediately if a financial problem arises. Typically, lenders will contact homeowners 16 days after the missed mortgage payment. While you can wait for communication from them, be proactive and inform them of your financial issues. Most lenders have options that help borrowers undergoing difficult times.
- Understand your mortgage rights – Go through your mortgage document to know what lenders can do if you don’t make timely payments. You should also learn your states’ foreclosure laws.
- Prioritize your spending – Paying a mortgage should be a priority after healthcare. Review your spending and make adjustments to cover your mortgage.
- Use your assets – If you have valuable assets, such as a whole life insurance policy, multiple cars, or jewelry, you can sell them for cash to cover your loan.
Endnote
Foreclosures are imminent to homeowners who can’t service their mortgage payments. If such happens, you will lose your property and owe your lender the deficient amount. Besides the emotional and psychological effects, foreclosures also hurt your credit score and reduce the chances of qualifying for credit in the future.
