This guide covers the reasons for foreclosures. The ability to repay is the most important factor lenders consider when approving a home loan to homebuyers. Even if the homebuyer puts a substantial amount down for the down payment, lenders want to make sure the borrower can comfortably pay their mortgage payments on time.

Lenders are not real estate investors. They are not in the business of foreclosing properties for a profit. Lenders do not want the property. They want the borrowers to pay their housing payments on time.

There are many reasons for foreclosures by homeowners. Any homeowner can go through a foreclosure. Most often, foreclosures happen above and beyond the control of the borrower. If a homeowner default on their mortgage and is behind more than 4 months, they are at risk of having their property foreclosed upon by the lender

The Ability To Purchase Another Home After Foreclosure

A foreclosure will hurt a consumer’s credit profile and drop credit scores. However, consumers can re-establish their credit after foreclosure and be eligible to purchase another home. We have seen many folks get their credit scores to 700 FICO Plus with a year after a foreclosure. The key is never to be late on any payments after foreclosure and re-establish credit by adding a new credit.

Foreclosures occur when a homeowner fails to make mortgage payments, leading the lender to seize the property. Several key reasons typically contribute to this situation.

Secured credit cards are the easiest and fastest way of re-establishing credit after foreclosure. Three secured credit cards with a $500 credit limit are the key in getting great credit after foreclosure. Government and conventional loans have a mandatory waiting period after foreclosure to qualify for home loans. Gustan Cho Associates has Non-QM Loans where there is no waiting period after foreclosure, deed-in-lieu of foreclosure, short sale. Please check our blogs on qualifying for a mortgage after foreclosure for more information.  Significant life events such as job loss, income reduction, or medical emergencies can lead to financial hardships. These hardships make it difficult for homeowners to keep up with their mortgage payments.

Reasons For Foreclosures: Declining Home Values

If home values fall, homeowners might owe more on their mortgage than the home is worth. This situation, often called “underwater,” can make it impossible to refinance or sell the home to pay off the mortgage, leading to foreclosure if the homeowner cannot afford the payments.

When interest rates reset higher, homeowners with adjustable-rate mortgages can face increased monthly payments. If the new payments are unaffordable, they can lead to default.

Some homeowners may need more financial literacy or better credit management skills, leading to excessive debt burdens that make it impossible to meet all financial obligations, including mortgage payments.  Significant life events such as job loss, income reduction, or medical emergencies can lead to financial hardships. These hardships make it difficult for homeowners to keep up with their mortgage payments.

Reasons For Foreclosures: Unforeseen Maintenance Issues

Unexpected home repair needs can be costly, and without adequate savings, paying for repairs while keeping up with mortgage payments can be challenging. In some cases, predatory lending practices steer individuals into mortgages that are not affordable or suitable for their financial situation, which can lead to defaults and foreclosures. Understanding these reasons can help mortgage holders and financial advisors take preventive measures to avoid foreclosure. For those facing the threat of foreclosure, it’s crucial to contact lenders for possible solutions like loan modifications, refinancing, or other foreclosure prevention programs.

Medical Issues Are The Top Reasons For Foreclosures

Illness or medical issues top the list as the reasons for foreclosures by homeowners. If the main wage-earner gets sick for an extended term, the household income comes to an abrupt halt. The monthly mortgage payment is a priority. However, there are other bills such as food, utilities, and healthcare that takes priority over the monthly mortgage payment. Illness or health issues suffered by a family member also affects the main wage-earner.

How Health Issures Become Reasons For Foreclosures

The main wage-earner may need to have to take time off work to care of the family member. Medical bills and medications are not cheap. Even with the best health insurance, a family may need to come up with thousands of dollars to keep up with medical expenses. There are thousands of types of illnesses. Some illnesses may take many months to heal. Other illnesses such as cancer may be terminal and can eventually lead to death.

Reasons of Foreclosures: Death of a Family Member

There are instances where the main wage-earner dies. Some folks are not fully prepared on what to do with their finances when the main wage-earner passes. Not everyone has life insurance. Those with private or company-sponsored life insurance policies can have the home mortgage paid off with the proceeds. However,

If the main mortgage holder passes with no life insurance and/or source of income, the lender will start foreclosure proceedings if the mortgage is behind in payments.

The surviving spouse needs to decide whether or not they will be able to afford the home. Other options may be selling the home and buying a lower-priced home. Or selling the home and moving to a rental. Whatever the decision may be, please contact the lender and let them know of your circumstances.

One of The Top Reasons For Foreclosures is Divorce

Recent data show that over 54% of marriages end in divorce. There are instances where both spouses income is needed to pay the mortgage payment. When they separate and eventually divorce, many folks cannot afford their home mortgage with a single wage-earner salary. Alex Carlucci, a senior vice president at Gustan Cho Associates handles many borrowers who need a new mortgage after a divorce. Both spouses need to think things through with who gets the home, who will be responsible for the mortgage, or whether to sell the home.

The Top Reasons For Foreclosures: Loss of Employment or Business

Job security is one of the most important factors mortgage underwriters look at prior to approving a loan. Getting fired by an employer is everyone’s fear. Lenders will offer forbearance or a loan workout for those who have been temporarily out of work. With today’s hot economy, many workers normally can get jobs in their fields quickly.

In some industries, getting a job may take longer than expected. Many experienced older workers with six-figure incomes are being replaced by younger workers who demand half the salary.

Unemployment or disability payments are a fraction of what a full-time wage earner’s salary is and often cannot cover the cost of living and mortgage payments. For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.