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If you are like many Americans and are having a tough time keeping up with your mortgage payments, it’s important that you understand the foreclosure process so you won’t lose your home.
The best thing you can do to keep your home from going into foreclosure is to communicate with your lender. It's likely that your mortgage holder will be willing to work with you as a foreclosure is also bad for it. The odds are that your lender will work with you on a personal level, taking your circumstances into account. In fact, if you are only two or three payments behind, your lender will probably send you what's called a "loan workout package" to help you catch up with your loan. It will consist of information, forms and instructions related to your ability to make payments.
In addition to communicating with your lender, you do have several other options.
FHA - if where you work or live is in an area that has been declared by the federal government to be a natural disaster area and you're headed to foreclosure, the FHA (Federal Housing Administration) has relief plans that can help you. As an example of this, you should be able to get up to three month's relief from your mortgage payments to give you time to work out your situation.
- Forbearance - this is where your mortgage holder agrees to let you suspend your payments for some period of time if you agree to another option for satisfying the amount of your loan.
- Reinstatement – where you pay the outstanding amount in one lump sum.
- Mortgage modification – these have become very popular recently due to the federal programs called HAMP (Home Affordable Modification Program) and HARP (Home Affordable Refinance Program). HARP can be especially helpful if you’ve kept up with your mortgage payments but are "underwater" on your mortgage. If you are employed but struggling to make your mortgage payments, the HAMP program might be able to lower your monthly payments. Here’s a brief video that explains how you could qualify for this program.
- Sell your home–the final and ultimate way to avoid foreclosure is to sell your home. You could then pay off your loan and move on. You might have to rent for a while or if you netted some money from the sale of the house you might be able to use it as a down payment on a smaller, less expensive house with a cheaper mortgage.
The effect on your credit score
If your house does go into foreclosure, this will definitely have a negative effect on your credit report and credit score. However, it will not damage it beyond repair. Your credit score is based on a number of different factors and foreclosure will be only one of them. If you had a relatively good credit score before your home went into foreclosure, you might have a surprisingly decent score afterwards. Of course, you should still go to work and do what you can to repair your score.