Stop Foreclosure – Foreclosure Prevention

Archive for January, 2009

Equity is defined as the value of the home minus the amount that owes on the property. When you are calculating the equity in your home it is important to include any amounts that are outstanding on the mortgage as well as the costs that would be associated with selling the home.

When you owe more on your home than your home is worth, it is referred to as negative equity. In the United States, ten percent of homes are in the current situation of facing negative equity. Negative equity exists when little or no down payment has been applied towards the home and the complete purchase price has been financed with the use of a mortgage. This number is increasing as the current state of the financial and economic markets remain uncertain.

There are ways to increase the equity in your home, which can hopefully increase the amount of home equity enough to bring your house from negative equity to positive equity. These methods are as follows:

1. Provide a higher down payment upon purchase of the home. A higher down payment can create a home that has instant equity. Therefore, if the homeowner decides to sell; the homeowner is not going to complete the sale owing money.

2. Making extra payments. Even if you can afford to make four extra mortgage payments per year towards the principal, this can go a great length to increasing the equity in your home.

3. Add surface to your home. When you add floor space to your home – the square footage is increased. Increasing square footage is a great way to up the purchase price of your home

4. Replace your appliances. Updated appliances including fridge, stove, dishwasher, washer and dryer have the ability to increase the value when these appliances are going to be included in the sale of the home.

5. Remodel the kitchen. Making simple upgrades such as ceramic tile and granite countertops can yield twice the initial investment when it comes time to sell the home.

6. Upgrade the bathroom. There is truth to the statement that kitchens and bathrooms sell homes. When you create upgrades in the bathroom such as glass tile and ceramics with luxurious appliances you can increase the value of your home greatly.

7. Reduce the term of your mortgage. When you reduce the term of your mortgage you can quicken the time that will pass before you are able to see equity within your home.

8. Finish unfinished spaces. Basements and attics that have been finished can contribute to the living space in the home. Finishing these areas can create extra rooms that will create equity while appealing to potential buyers.

9. Refinish the outside of the home and create curb appeal. Aspects of the home such as new windows, siding and even the front door can assist in upping the equity in your home.

10. Add amenities. Pools, saunas and hot tubs have been said to be hit and miss when it comes to increasing equity. The truth of the matter is however, homes with in ground pools sell more than homes without. You do the math and calculate the equity that can be earned in your home by the addition of a pool.

Using these methods, you can increase the equity in your home and crawl from the negative equity situation to creating equity in your home that you can use.

With the rising costs of mortgage payments there are many homeowner that are seeking ways to increase their income to cover these increasing costs of the monthly mortgage payment. The answer to the financial problems could literally be within the walls of your home.

A solution that many homeowners have stumbled upon is to rent a portion of their home to a tenant to cover the high costs of the mortgage. The tenant can cover up to fifty percent of the costs of the mortgage and therefore free up the finances of the homeowner to complete renovations, repay debt or repay the mortgage in a timely manner.

There are many ways that this can be completed. For example, renting a room within your home could yield between $400.00 and $500.00 per month. Do you have a finished basement available with a separate entrance? This type of dwelling could rent for up to $1,200 per month. As an alternative, for those homeowners facing severe financial distress, the upper portion of the home could be rented to potential tenants and you could move to the downstairs dwelling. Main floor residences can yield up to $2,500.00 depending on the type of home and the area that the home is located in.

There are many advantages to renting a portion of your home to potential tenants:

- The extra income can be used to complete renovations which can increase the equity within the home. Experts recommend that most money put into the home can increase the value by double the amount of the investment.

- Are you facing high levels of debt? Using your asset, your home, to create an income can reduce the amount of hours that you must work to repay the debt.

- You can decide the regulations for the space which is to be rented. You can interview tenants to find the right fit to ensure that personalities do not clash.

Where should you advertise your rental? Advertising your rental in a specific area could truly narrow down the demographics of the potential tenant. For example, do you live in the vicinity of a college university or school? Students are often seeking short to long term rentals in these types of areas.

This type of rental is considered to be an owner-occupied rental and is popular with potential tenants as they know the landlord will be readily available in case any issues come up about the rental of the property.

How long do you intend to make use of the extra rental income? Many homeowners use a tenant as a way to cover costs during the transition to a new home. Owning a home often costs more than renting and therefore these higher costs can create a hard to acquire to transition when it comes to owning your first home.

After you have decided to rent the property it is important to set guidelines for the tenants. Be sure to enable these rules which may include the changes that they are allowed to make within the interior of the property and any rules regarding behavior within the rental.

Loss mitigation is used as a way for homeowners to prevent foreclosure of their largest asset. In the past year we have seen the highest historical rate of foreclosure in the United States. Loss mitigation is used to assist the homeowner through the repayment process while increasing the chances that the lender receives payment for the balance that owes on the mortgage payment.

These loss mitigation methods are meant to decrease the loss that the lender will see on the property while increasing the chances of the borrower being able to prevent foreclosure through alternative methods of raising the capital to fund the repayment of the home loan.

Cash for keys negotiations are a type of loss mitigation that includes

There are several types of loss mitigation that are available as alternatives to foreclosure, these include;

· Loan modification

· Short Sale

· Short Refinance

· Special Forbearance

· Cash for Keys Negotiation

Loan modification occurs when the homeowner and the lender come to new terms for the loan to accommodate both parties. There are many options which could be completed, such as; reducing the interest rate of the loan, extending the principal, forgiving defaulted amounts and fees. There are many instances when a variety of these methods are used in combination with each other to create terms that are ideal for both the lender and borrower.

A short sale occurs before a foreclosure. The short sale allows the homeowner to raise the funds to repay the amount that owes on the mortgage. The lender reduces the mortgage amount to allow the homeowner to sell the home. Compared to a short sale, short financing also includes a reduced principal to the mortgage which allows the homeowner to refinance with another company. Unfortunately, in most cases the homeowner is left without options unless the lender can accommodate the homeowner and reduce the principal of the loan.

A special forbearance is a type of loss mitigation that includes fewer, or no repayment until the borrower is able to afford the payments. This can occur in between a loan modification and is helpful for those homeowners that are in the process of refinancing to ensure that the home is affordable.

How do you know which type of loss mitigation is right for your personal financial situation? Every situation is different; a loss mitigation specialist can assist in determining which technique will demonstrate the best outcome for everyone involved.

The main benefit to loss mitigation comes in favor of the homeowner as it can often prevent foreclosure proceedings from occurring. The lender also sees a benefit, as they can avoid the expensive and lengthy costs of foreclosure proceedings while reducing the loss which is taken on the property and the loan.

You may have heard something or other to do with the subprime mortgage crisis, in which stress is being placed on the economy due to the increasing number of consumers that are unable to pay their mortgage payments which is resulting in increasing foreclosure rates occurring throughout cities in the United States.

Mistakes were made within the companies that funded the mortgages – as loans were given to borrowers that did not meet the qualifications for borrowing – yet, these loans were given anyway. If the borrowers were unable to meet the obligations that came with the home loan than the home entered a state of foreclosure where the lender can regain possession of the home and sell the property to recover the amount that owes on the mortgage.

In many cases, because of the low qualifications that were granted to these borrowers, the obligations were not met and therefore the homes entered the state of foreclosure. At one of the highest points, the value of the subprime mortgages were valued at over $1.3 trillion dollars (which is almost ten percent of the mortgages which have been issued in the United States).

These practices have created quite a predicament in the economy – which has come to be known as the subprime mortgage crisis. So what happens when these homeowners are unable to repay these mortgage debts? The foreclosure rate increases to an all time high and there become an overstocked supply of houses available on the real estate market.

As there are so many homes available on the market it reduces the value of the homes that are not facing foreclosure. The market shifts to become in favor of the buyer, as there are many homes available on the market and the sellers can lose money on their home as the value decreases the amount of equity which has built in the home.

This process does not only affect the homeowners – but it also begins to affect the lending institutions. When homeowners fail to make the mortgage payments that have become associated with the property the mortgage backed securities that the bank has hold of and thus causes the erosion of these banks. This cycle continues as long as homeowners are unable to make their monthly mortgage payments and the banks will continue to experience declining health. This cycle that occurs from mortgage owners becoming unable to complete their obligations to the loan has been said to be the cause of the subprime mortgage crisis.

During the heart of the crisis homes were seeing an average of twenty percent decrease in value. Homeowners were facing the highest rates of foreclosure – which is an expensive and lengthy process for lenders – and the crisis was becoming maximized as more and more homeowners became unable to repay the outstanding debts on their owing mortgage.

Can Obama bring hope to the thousands of homeowners that are currently facing or threatened with the thought of foreclosure on their homes? Up to half of seven hundred billion dollars is being allocated towards the credit market to help homeowners overcome the threat of foreclosure. These financial rescue funds are most needed in areas that can prevent homeowners from losing one of their largest assets and in many cases their livelihood.

Foreclosure occurs after a notice of default has been issued to a homeowner. The homeowner must be at least three months defaulted in payments to receive the notice; which puts the home at risk of foreclosure. Although there are many methods that can be used to avoid foreclosure, many homeowners wait until it is too late – at a time when they have seemed to run out of options.

What kind of immediate action is being taken to protect these homeowners from foreclosure and the repercussions of the failing economy? Homeowners will be happy to hear that up to one hundred billion dollars is in the works to be allocated towards revising mortgages to assist homeowners maintain ownership of their house.

This money is going to directly fund TARP (Troubled Asset Relief Program); although a budget has not been released about how exactly the money is to be allocated within the program. Apparently, in the past there had not been even one percent of this fund that had been allocated towards helping those individuals and families that were facing foreclosure.

The United States Treasury concurs with this decision that the funds be allocated towards the prevention of home foreclosures. The myriad of foreclosures have a devastating effect on the market and should be reduced – at all costs.

What measures is the Obama government taking to reduce the historically high rates of foreclosure? Focusing on reducing the foreclosure rate is nothing new for Obama, along with the focus on small businesses and creating jobs to combat the historically high unemployment rate.

Is it enough to provide the funds that can help homeowners and lenders deal with the foreclosure crisis? Many experts believe that smart credit use and education can go a long way in preventing foreclosure risks for homeowners in the future. Homeowners need to take responsibility and truly and honestly asses how much they can afford in their home purchase. Lenders also need to be stringent when assessing the repayment ability of potential mortgage recipients and homeowners.

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