A Quick Overview of Foreclosure
Foreclosure is what happens when you default on consecutive mortgage payments (usually three or more). When this happens, your lender has the right to take control of the property and sell it at auction in order to recover the amount that you still owe on your mortgage.
That sounds scary, and it is: foreclosure can ruin your credit score and severely limit your living options for at least a few years. It’s important to know that, but it’s equally important to understand that foreclosure doesn’t happen overnight.
Until your property is seized by the bank (even if it’s in pre-foreclosure), it’s yours to deal with as you please. That means that, until the day your home is taken over by the bank, you have the right to sell the home. That said, let’s not get ahead of ourselves. Whether you’re already in pre-foreclosure or simply gearing up to get there, here are some of your options.
First Things First: Is It Right For You?
Before you can take action, you have to determine whether owning a home is right for you. Do you want homeownership to continue being a big priority for you? Does owning a home bring you more joy and peace of mind than worry and distress?
If you’re committed to homeownership but concerned about its costs, you can take a few different courses of action:
Negotiate with Your Lender
If you’re worried that you’re going to default on a payment, the best thing you can do is communicate with your lender. It may sound intimidating or even pointless, but if this is a first-time thing (or the first couple of months when you’ve struggled), your lender is likely to be open to coming up with an arrangement that works for both of you.
The reality is that foreclosure is a lot of work for your lender. They put a lot of time and money into foreclosure proceedings, and the money that they make for the property at auction doesn’t always make up for it. If your bank can avoid going into foreclosure processes, they probably will.
If you have a pretty good payment history and this is your first time experiencing hardship, talk to your bank about whether they have any programs or plans available for you. It doesn’t hurt to ask, and it could end up being a total life-saver.
Refinancing isn’t an option for everyone, but depending on your circumstances, it could be an option worth considering. For one, if you have a good credit score and payment history on your mortgage, you might be a good candidate for refinancing. It could also be a good idea to look into this avenue if you have a lot of equity in the property. In this case, refinancing could get you a lower interest rate and monthly payment, which will probably help to make keeping up with your monthly payment much easier.
If your credit score isn’t very high, you don’t have much equity in the property, your pre-foreclosure has started, or you’ve refinanced in the past, this may not be a feasible option for you. WIth that said, if you think that it might be, you should talk to a real estate agent or financial advisor about your options. This could be a great way to hold onto your property and get a lower monthly payment (which is as close to a win-win as you can get).
Sell the House Quickly
If the two options above aren’t a good fit for you, it could be a good idea to look into selling your property. If you’re already in pre-foreclosure, that means selling for cash. When you sell your property for cash, you get two major benefits: easiness and efficiency. The average home sale with a traditional market listing can take an average of 3 months here in Florida, which can be longer than foreclosure proceedings. That’s not a risk that many homeowners would be willing to take, and for good reason. On top of that, traditional sales are full of uncertainty: the deal can fall through at any moment during escrow due to a bad negotiation, unfavorable inspection, or too-low appraisal. Long story short: traditional sales can be great, but they take a lot of time and energy (which you’re probably low on if you’re worried about foreclosure).
On the other hand, a cash sale can happen in as little as one day (seriously). When you work with a solid cash buyer, you don’t have to worry about negotiations and uncertainties: selling your property is as easy as giving them a call, having them over to take a quick look, and getting paid with your full offer. That’s it.
Our biggest tip when working with a cash buyer is to ask them how they come up with their cash offers. The answer to that question should always be by analyzing real-time market numbers. The only way to get a fair cash offer on your house is to make sure that the offers you’re given are based on market data, not opinions. If you find that in a buyer, you’re golden.
If you’ve built up a lot of equity in your house, you’re more likely to be able to pay off what you owe on your mortgage while still having some money left to tide you over as you figure out your next steps. In terms of quickness, ease, and peace of mind, selling your house for cash is one of the best options out there.