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The mortgage approval process can be slow and stressful, but if you think that after closing on a mortgage loan deal you are free to rest, you need to think again. When the mortgage monthly payments start affecting your finances, you need to start enhancing your budgeting skills and learn how to manage your finances in order to avoid late payments or worst: defaulting on your home loan.
Your first home or a larger one for a growing family usually involves complete focus on accumulation of down payment and meeting criteria for financing the chosen property. With final closure of loan and settling into the house there is great relief. However, soon enough you will be faced with the financial demands of home ownership.
As your home is a major investment, a lot is at stake in case of defaulting on mortgage payments or failure in maintenance. Plan for unforeseen situations in addition to the routine costs of home ownership and you are likely to avoid foreclosure or bankruptcy in case of emergencies.
Thinking Ahead
Create a budget planning for maintenance and repairs. An emergency fund for repairs and replacements is also advised. Find out your financing options for major replacements like roof or heating system. With costs running into thousands a home equity loan, second mortgage or installment loan may be necessary. Examine your loan options thoroughly with a plan for a major expense.
A loan workout plan with your lender defines remedies for delinquency and avoids loss of home. Either written or oral, specific deadlines are crucial to avoid foreclosure. So be very realistic in estimating your ability to achieve the plan schedule.
The workout plan is subject to the gravity of default, duration of financial difficulties or impairment of your payment ability for the near future, chances of acquiring funds to correct the default and current value of the property.
Waivers
Temporary indulgence is likely if the default is due to a temporary condition with the likelihood of being rectified in a short span. This possibility arises in situations where the house has been sold with the sale yet to be settled or with pending insurance settlements. It is often possible to set a date for curing the default. Documented evidence like sale contracts may be necessary for the lender.
In case of a temporary loss of income followed by return to previous levels, your repayment plan could be restructured for making the loan current. This arrangement requires timely mortgage payments on schedule, with an extra amount to rectify the delinquency in about 12 to 24 months. Sometimes the extra amount could be a lump sum due by a specific date. Repayment plans are most popular for this workout agreement.
At times no payments may be possible for certain duration. A good record with the lender can merit a forbearance plan to suspend or reduce payments for a specific period. Forbearance plan is written with a definite term and specifies them method for ending the delinquency. Usually the duration is under 18 months and it specifies commencement of foreclosure in case of defaulting on the agreement.
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