If you’re facing difficulties and finding it challenging to afford your home there are a couple of options that could help you avoid foreclosure. A sale or a deed, instead of foreclosure. While neither option is ideal compared to staying in your home they can at least spare you the expenses and troubles typically associated with foreclosure.
What exactly is a short sale?
A short sale refers to selling your home for an amount that’s less than what you owe on your mortgage. It doesn’t necessarily have to be sold to your lender. Their agreement is required. Borrowers choose this route when they can no longer afford their mortgage payments and cannot cover the difference between the sale price and the remaining mortgage balance. However, it’s important to note that unless agreed upon by the lender the borrower remains responsible for repaying the remaining mortgage balance. Many lenders often request evidence of financial hardship, from borrowers before approving a sale.
Benefits of opting for a short sale;
You can potentially purchase another home within two years of waiting five to seven years if you were to go through foreclosure.
You’ll save yourself from incurring costs and fees typically associated with foreclosure.
Disadvantages of opting for a sale;
Your credit report might take a hit if your lender reports the sale, to credit monitoring agencies.
If you happen to owe money to creditors, such as having third mortgages on your property all of them would need to agree to the short sale. This is because they will receive an amount than what you owe them.
Advantages associated with choosing a deed, in lieu of foreclosure;
- It fully satisfies your loan obligation.
- Your credit rating doesn’t get severely impacted compared to undergoing foreclosure.
- However complications can arise if there are lien holders involved with the property.
- If you have any debts or unpaid mortgages your lender would take on the responsibility of paying off these obligations if they choose to buy your home through a deed, instead of foreclosure. In cases, your lender might opt to foreclose on your property in order to clear these liens.
An alternative to foreclosure is a program called “deed for lease” or “mortgage to lease.” This initiative was introduced by Fannie Mae in 2009. Banks are also working towards implementing their versions.
The concept behind the rent back program is connected to the deed instead of the foreclosure program. In this scenario, the lender agrees to let the borrower who defaulted on their mortgage stay in the home as a renter for a period ranging from one to three years. However, not everyone will qualify for this program as it ultimately depends on the lender’s discretion.
In conclusion
if you’re struggling with making your mortgage payments you must discuss these options with your lender as soon, as possible. Doing so can potentially save you time. Spare you from going through the challenging and arduous process of full foreclosure.
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