Ideally, when you decide to buy a house, you are ready to tackle the financial responsibility. Ideally, you have researched the real estate market and have plotted a fail-proof strategy to boot. It pays to have singled out the best mortgage rates currently offered in the market so that you know you will end up with the most rewarding deal.
Failure to accurately assess your financial capacity to pay for a home can lead to your missing payments in the future. And once those mortgage backlogs accumulate, there’s a real risk of getting your house foreclosed.
A decade ago, the United States saw its biggest housing crisis. Almost 10 million Americans lost their homes to foreclosure. As much as financial experts rightly blamed a corrupt system for that perfectly avoidable real estate mess, their take did not do much for the plight of those who were suddenly homeless. In short, the culprits got away with it.
Fast forward to now, that sorry situation should no longer happen. But, as a future homeowner, you still need to get a grasp of what foreclosure is all about. Here’s what you need to know.
The whys of house foreclosure
Before we discuss why foreclosures happen, we need to talk about how housing purchases usually work. Normally, home buyers only pay a small fraction of the house’s value upfront. This down payment falls between three and 20 percent of the total price.
Banks come in to pay for the rest of the property’s selling price. They then present a mortgage plan to the home buyer, which now becomes the borrower. The latter has to make scheduled payments to hold up their end of the bargain.
In a nutshell, foreclosure happens when a borrower is unable to pay their mortgage. The mortgage provider, typically banks, takes legal action against the delinquent borrower to ensure mortgage payment can still push through even without the borrower involved.
Your house will be foreclosed for it to be resold in the market. That way, the lender recoups the money they invested in the property.
The hows of house foreclosure
Falling behind your payment schedule for a few days won’t put your house at risk of getting foreclosed. Although, it’s worth noting that late payments will lead to your incurring penalty fees. So if you have the funds for your scheduled mortgage, it’s best to pay on time.
Keep in mind that there are no hard and fast rules on how lenders go about foreclosure. Their ways and means vary. However, there are common denominators.
For instance, most foreclosure notices will begin to appear on your door after three to six months of your last payment. They will come in the guise of a “Notice to Accelerate” or “Demand Letter.” These correspondences will basically ask you to take care of overdue payments within 30 days.
After the fourth month without any payments made, your lender will refer your case to their legal department. And this is where things get real.
The foreclosure will push through either via the judicial or non-judicial process. The former requires your lender to take the case to court, making the process more protracted. The latter requires no more than the “power of sale” clause specified in the contract you signed with the lender, making foreclosure faster. Either way, you may try to sway the situation in your favor.
How to avoid foreclosure
Consult with a U.S. Department of Housing and Urban Development (HUD) counselor. They will be able to help you with your case. It pays to have legal counsel on your side should things get complicated.
You can also look into government bailouts. For instance, because of the pandemic, the government has offered homeowners a temporary mortgage relief. The Making Home Affordable program might help you as well.
Still, the best way to avoid foreclosure is to be proactive with your finances. If you’re going through a rough patch money-wise, consult with your lender. Do not abruptly stop making payments. You and your lender might come up with an alternative plan.
You, just like everyone else, deserve a house where you can safely raise a family and where you can peacefully retire in the future. Ideally, housing is a human right provided to all. Unfortunately, we do not live in an ideal world. The best that you could do is find the ideal mortgage deal for you.
If you know you are ready to finally take that big leap and own a house, go for it. You work hard, and at the end of the day, you need to come home to a place you can call your own.