Behind On Your Mortgage? What Are Your Options?

When someone falls behind on their mortgage, the first thought he or she usually has is to walk away and allow the property to be foreclosed upon by the lender.

While foreclosure may be the first thought, it should be the last resort.

There are actions that you can take in an attempt to save your home. At the very least, the options will help you stay in your home longer.

So first consider these other options.

1.       Loan mitigation/modification: If you are working and drawing a steady income, you may qualify for a loan mitigation with your lender. Loan mitigation involves submitting an application to your lender documenting your income and expenses along with an explanation as to why you are having trouble paying your mortgage.

Loan mitigation is essentially a negotiation with your lender which may reduce

·   Principal amount owed;

·   Interest rate which will reduce the monthly payment; and/or

·   Monthly payment regardless of the other aspects of your loan;

·   Or possibly a combination of one or more of these terms.

2.       Short sale: What is short sale? A short sale involves selling your home for less than what it is owed on the mortgage. The buyer’s offer to purchase is submitted to the lender who then decides whether or not to accept the offer.

      The lender may accept the sales price as payment in full on your debt. In most cases, the lender will not attempt to recoup the balance owed. If the lender opts to not pursue collection the additional balance owed, it is called forbearance.
In many instances, you may be able to negotiate a cash payment from the lender for moving expense, usually a few thousand dollars.

Here is an example of how a short sale works. Say you owe $300,000 on your mortgage. If you attempt to sell your home and a buyer offers $250,000, you accept the offer and submit it to the lender for approval. The lender may accept the $250,000 as payment in full and discharge the remaining $50,000 of debt. The lender, however, is not required to forgive the remaining debt and may continue to hold you responsible for the unpaid balance.
Another advantage to a short sale is that attorney fees, realtor commissions and closing costs are usually borne by the lender and buyer.

3.       Deed in lieu of foreclosure: Deed in lieu of involves turning over the deed to the property (ownership) to the lender. In exchange, the lender agrees to not pursue foreclosure through the court process. This avoids a public record of foreclosure.

4.       Keys for cash:  Keys for cash is similar to deed in lieu of. The difference is that with keys for cash, the lender will give you a cash payment in return for turning over the keys to the property. If the property is in good condition and has been maintained, this may be a viable option. This option also avoids the very public foreclosure process.

If your lender has already filed for foreclosure, there are still actions you can take to possibly keep you in your home longer, though those actions are more limited. At this stage of the process, it is important that you show up for all court dates. By doing so, you will know what is happening with your case as well as potential opportunities to explain your situation to the judge to ask for more time to receive a short sale, or work out another resolution with the lender.

Taking these steps usually will help keep you in your home for several months, maybe even years. I know of several instances where the homeowner has been in the foreclosure process for several years.

If you are dealing with mortgage issues, do not hesitate to ask for professional help.

DISCLAIMER: Nothing in this article is intended to offer legal advice

This topic is elaborated on in my book “Money Matters Made Simple: A Woman’s Guide to Financial Health and Wealth” which can be purchased from my website www.AnneSchwab.net or on Amazon.com. Enter code X5S2AAZR for a 10% discount.

For more information on Anne, visit www.AnneSchwab.net
For a sneak preview of "Money Matters Made Simple: A Woman's Guide to Financial Health and Wealth" visit www.MoneyMattersMadeSimple.net

5 Actions to Remain Financially Healthy in Your New Home

Buying a home is an exciting life event – which can also be financially stressful.

Here are five actions you can take to help you remain financially healthy in your new home.

1.  Minimize use of credit, if possible.

Debt is a financial cancer that can quickly spiral out of control. If you must use credit, have a plan to pay off the debt. For example, if you have bought furniture for $2000, plan to pay it off in one year by paying at least $167 each month towards the balance.

What actions can you take to avoid taking on debt? That brings us to our next three points.

 

2.   Start a savings program if you don’t already have one.

You know that certain things in your home will eventually need to be repaired or replaced. Appliances break down and furnaces don’t last forever. Anticipate your future costs and expenses and have a savings plan to pay for those expenses when they come up. For instance, if your roof will need to be replaced in 10 years at a cost of $10,000, you will need to save $1000 per year or $83/month to have enough accumulated to cover that expense.

Even if you can only save $10 per week, that’s $500 more per year than you would have had if you hadn’t saved.

3.   In addition to a savings plan, set up an emergency fund.

What is the difference between savings and emergency funds? The difference is that savings are accumulated to pay for anticipated expenses, while an emergency fund is available in the event of an unexpected crises.

For example, if a storm topples a tree on your roof, not only will you have to remove the tree, you may encounter repairs such as a damaged roof, siding, windows, or perhaps even structural issues. While home insurance may help to defray some of those costs, insurance won’t help when your refrigerator conks out prematurely.

How much should be in an emergency fund? The rule of thumb is that it should be large enough to cover at least 3-6 months’ worth of expenses. If self-employed or your income varies, it is recommended that your emergency fund be large enough to cover at least 6-12 months’ worth of expenses.

4.   Develop a budget.

A budget will tell you if you are spending more than you earn. Why is that important?

If you are spending more than you are earning, then you are going into debt and it would behoove you to look for ways to reduce your expenses.

People tend to avoid budgeting because it feels painful. It doesn’t have to be. It is a simple process that can be completed in about 30 minutes and will help identify expenses that can be reduced or eliminated without significantly impacting your lifestyle. One client recently saved $100 per month simply by switching cable companies.

Start by listing all your expenses, then subtract that from your income. What is left over is discretionary income – money that is available for you to apply to other things that are important to you, such as building up your savings or emergency fund.

After doing the math, if you have money left over, you are doing great! Keep it up and continue to add to savings/emergency funds on a regular basis. If, on the other hand, you are in the hole, look for ways to reduce expenses.

5.    Avoid depleting savings.

If you deplete your savings, you will be dependent on credit to pay for those expenses. As has already been mentioned, debt is a financial cancer that can quickly spiral out of control. Additionally, it may not be available when you need it.

In summary, don’t take on more than you can afford. If you need help with budgeting or reducing expenses, work with a professional financial planner who can assist and guide you.

 

To learn more about becoming and remaining financially healthy, order the book “Money Matters Made Simple: A Woman’s Guide to Financial Health and Wealth” which can be acquired at www.AnneSchwab.net. To receive a 20% introductory discount, available only thru Feb. 28, 2015, use the contact form on the website and reference RER215.

 

For more information on Anne, visit www.anneschwab.net

FIRST TIME HOMEBUYER?

Unexpected Costs That May Get You Into Trouble Financially

Buying your first home is an exciting personal milestone. You've qualified for the mortgage and you know what your monthly expense will be. Or do you?

Whenever we do something for the first time, we do not know what to anticipate. The same is true if you are buying your first home. All too often many new homeowners are unaware of the costs of homeownership. Not knowing what those costs are can get you into financial trouble.

What are those costs and how do you prepare for them? Let's start with the expenses that will need to be paid for at closing.

1.       COSTS IN ADDITION TO DOWN PAYMENT

First, you’ll want to have an attorney review your contract and for that service you should allow at least $350 or more. This fee is usually paid at closing and increases the amount of cash you need to bring to the closing. Buying property without an attorney review is a decision that can haunt you for as long as you own the property.

Just like the attorney contract review, a home inspection should be performed. This inspection will uncover problems that will become your problems as soon as you are handed the keys. For this service expect to pay around $400-$500.

If you are obtaining a mortgage, you’ll be required to have an appraisal that will run in the range of $500. All of the afore mentioned  expenses may be higher depending upon the complexity of your transaction.

At closing, you may be responsible for paying all or some of the title company and closing company fees. The title company insures that a clean title is passed to the new owner by performing a search for encumbrances on the property such as mechanic liens and are responsible if a title passes with unidentified liens.

One recent situation involved Pasquinelli Builders when they filed for bankruptcy. Unpaid mechanic liens on one of their developments had been recorded but the title company did not identify those liens. When the mechanics sued the homeowners for payment, the title company was responsible and the homeowners were exonerated.

The business where the closing is conducted prepares all the documents, issues payments and files the necessary documents. The fees for these services usually run $1000-$2000.

2.       INCREASED LIVING COSTS

Whether or not you had renter's insurance before, you will definitely want homeowner's insurance which will cost about $1000 per year or more depending upon the coverage you have.

You can also expect your utility bills to be higher, especially heating costs if poorly insulated or electric cost for air conditioning.

One client bought a condo in an older building with electric heat and windows facing west. His electric costs were about $300 per month in both winter (electric heat is not as efficient) and summer (more energy was needed to counter the effects of the hot afternoon sun).

As a renter you may not have had to pay for water, sewer, or garbage. Those are all new expenses you should expect.

3.       FIX THINGS

You no longer have a landlord that will come in and fix things - when something breaks down is now your responsibilities. Expenses that you can expect include plumbing leaks, painting the interior, repairs, hot water heater, gutter cleaning. These are all costs that you will need to pick up.

For example, you will want to clean your gutters at least twice each year. While most people anticipate fall clean up, they don't expect late spring gutter cleaning. Seeds from trees and bushes can quickly build up in the gutters causing them to clog. When they clog, the weight of rainwater can literally pull off the gutter, resulting in a repair more costly than cleaning. Each cleaning will run about $100, and more if you have a 2 or 3 story.

Or maybe the garbage disposal is inoperative, there is a plumbing leak or the hot water heater will need to be replaced within the first few months you are in your home. The home inspection you had done will give you a good idea of what to expect and when so you can anticipate and plan for the costs.

 

4.       MAINTAIN THE PROPERTY

Just as your car requires regular maintenance (oil changes, new brakes, tire and belt replacements), everything inside and outside of your property will require regular maintenance. If you have bushes or trees that die or become diseased, you will need to remove them.

 

Certain things will eventually need to be replaced due to aging, such the roof or the furnace.  Those expenses generally run in the thousands of dollars. Don't forget appliances that break down, driveway and sidewalk repairs, or gutters that need to be replaced.

If you know the age of the component, you can usually anticipate when the repair or replacement will be needed. This is. again, where a home inspection comes in handy as it identifies the issues so you can anticipate the cost and when it will occur.

Age of the component is no guarantee, however.  One client had her refrigerator's compressor break down when the frig was only 3 years old and the dishwasher had to be replaced 2 years later, each costing more than $1000.

5.       BUY NEW FURNITURE, WINDOW COVERINGS, DECORATE, ETC.

It is not usual to believe that your new home is perfect and will not need any work. Amazingly, once you have moved into your new home, suddenly your old furniture looks ratty. Or perhaps the window treatments do not really suit you.

If you now have a yard, deck or patio, you’ll probably want to buy lawn furniture, or maybe a grill. All those items run a few hundred and up.

New living room or bedroom furniture can easily run in the thousands. If you do buy new furniture, BEWARE, however, of store incentives that offer no interest for 12 months. If the full balance is not paid within that time frame, interest could be very steep (as much as 20% or more) and is calculated from the date of purchase.  On a $2000 purchase, for instance, the interest could add another $400 in cost.

How will you pay for those expenses? Savings? Credit? Or "I don't know."

TIPS TO REMAIN FINANCIALLY HEALTHY IN YOUR NEW HOME

1.       DON’T TAKE ON MORE THAN YOU CAN AFFORD. Anticipate the costs and start a savings program if you haven’t already. Even $10 per week adds up to over $500 per year.

2.       Establish an emergency fund that is at least 3-6 months worth of expenses. An emergency fund can help defray the cost of those unexpected expenses or should you have a loss of income.

3.       Avoid using credit, if possible. Debt is a financial cancer that can quickly spiral out of control. If you do use credit develop a plan to pay off the amount owed. For instance, if you buy furniture for $2000 with no interest for one year, you will need to pay at least $167 to pay off the balance during that time frame.

4.       Do not deplete your savings. If you do so, you'll have to rely entirely on credit and there is no guarantee that you will qualify for the credit. Even if you do qualify for the credit, how will the additional payment affect your overall finances?

5.       Budget! Many people cringe when they hear that word or tune out everything else you say next. To be financially healthy, though, you cannot spend more than you earn. Without a budget, you are flying blind as to whether you are running a deficit or have a surplus.

To best enjoy your new home, stay financially healthy. Do not hesitate to ask for professional help if you have difficulty developing a budget or have other financial issues and concerns.

 

For more information on Anne, visit www.anneschwab.net