Youngandthrifty's thoughts: With the economy currently in distress, gas prices looming higher and higher, and the real estate market in parts of North America in the absolute pits, buying a home or keeping up with payments on a current home loan can seem like a very daunting task. In order to prevent something called the “F” word from happening (Foreclosure… no, not the other word- get your mind out of the gutter!).
Tips for staying ahead of home loan debt
Having trouble making regular home loans repayments? Faced with foreclosure, or looking to rebuild your bank balance after losing your home to the banks? There may be options available that could improve your financial predicament.
When a lender takes steps to sell mortgaged properties and claw back financial debt from a borrower, often it is the last resort for the lender. In many cases, there are steps that borrowers can take to keep foreclosure from becoming a reality.
Be aware of your financial situation and risks
Among the common reasons why mortgage holders fail to meet their regular home loan repayments are:
- A household income drops from two to one
- A regular income stream is lost due to redundancy or lifestyle changes
- Poor financial management: having multiple credit card debts; unsuccessfully juggling too many loans (home, car, and personal loan).
- Not factoring in a buffer of at least 2% into home loan repayments
If any of these situations apply to you, or you identify any issues, you should review your financial situation as soon as possible and consult your mortgage broker or lender.
Options to consider if you’re behind on repayments
- Take action, today. Generally, it takes far more than falling behind on a couple of home loan repayments for a lender to step in and sell your home. Regardless of the level of difficulty a borrower is facing, it pays to inform your mortgage broker or lender about your financial difficulty as soon as possible. Take action immediately. Your lender will investigate your situation and endeavour to create an ongoing repayment plan for you.
- Consider selling your property. Selling your property and paying off the debt before things get out of hand is one way of avoiding the pitfalls of a poor credit record.
Recovering from foreclosure: top tips
If your property has already been repossessed and you’re finding it challenging to recover from foreclosure, we have a few tips that could help you cope and rebuild your financial future:
- Be patient. It will take time to rebuild a clean credit history.
- Develop a comprehensive budget. Stick to it. A good budget helps you understand the lifestyle you can maintain. Will it be fillet Mignon for dinner – or sausages? Cancel that nightly glass of wine. Eat at home. Prepare meals from scratch. Put dining out on the backburner.
- Cancel the credit card. Live within your means. Can’t afford it? Don’t buy it.
- Get a second job. Getting a second job is a practical way to rebuild your finance and cement a savings strategy.
If you are considering revisiting home ownership, be mindful that you will need to save for a significant deposit plus costs. Of course, seek financial advice as to whether you can comfortably manage a home loan, which is a long-term financial commitment.
Readers: What do you think? Would you sell for a loss on your home if the value of the home at current prices were lower than what you paid for? Or would you stick to it and hold on, waiting for improvement in prices? Have you known anyone who ended up having to foreclose?