Selling Your Home Prior To Foreclosure And Qualifying For New Mortgage
This article is about Selling Your Home Prior To Foreclosure And Qualifying For New Mortgage
Homeowners who get behind on their mortgage payments more than 4 months can have their mortgage lender start foreclosure proceedings against their homes.
- A foreclosure is when the mortgage lender starts legal proceedings to take over a homeowner’s home due to the homeowner defaulting on the terms of their mortgage note
- Most foreclosure proceedings are due to the homeowner not making their mortgage payments
- Selling your home prior to foreclosure is possible if you have equity in your home
- Many homeowners do have equity in their homes but due to a loss of a job or other extenuating circumstances cannot make their monthly mortgage payments
- If you have equity in your home, selling your home prior to foreclosure is recommended where you can avoid actual foreclosure and recoup some equity from the sale of your home
Contact Your Lender If You Are Selling Your Home Prior To Foreclosure
Homeowners who no longer afford their home due to a loss of job or loss of business and cannot afford mortgage payments, contact mortgage lender prior to getting behind on mortgage payments.
- Mortgage lenders are more likely to work with borrowers if they contact them prior to being late on mortgage payments than if they were to avoid them and contact them when they are behind
- Lenders have a workout department for homeowners who cannot afford their mortgage payments
- The workout department does not want the home but rather work things out with homeowners
- The last thing lenders want is to accumulate real estate inventory
- The real estate they have liens are is just a security instrument
- Liens on the property can protect their interest
- The property gets liquidated after it gets foreclosed
Homeowners intending in keeping home but cannot afford to keep up with mortgage payment until finding a new job, then the workout department can help.
Pre-Foreclosure Workout With Lenders
The lender may offer forbearance and/or a loan modification. Lenders do not want the property. This holds true even though the property is used as collateral on home mortgages:
- A forbearance is when lenders give temporary relief to the homeowner
- Lenders give homeowners some time from making the mortgage payments until they gain new employment or able to afford to make timely payments again
- After the forbearance period is over, the amount that is due can be rolled back to the balance of the mortgage loan or can be spread out for a period of time
Sometimes, lenders may just forgive the past due mortgage payments.
Short Sale Is Alternative To Foreclosure
For homeowners who have no equity in their homes with the home value that is lower than the home value may qualify for a short sale:
- A short sale is when lenders approve the homeowner to sell their home below the amount they owe on their mortgage balance
- Short sales are normally executed when the mortgage loan is upside down
- The mortgage loan balance is higher than the value of the home
- Another alternative for homeowners who have homes with mortgages underwater is to do a deed in lieu of foreclosure
- A deed in lieu of foreclosure is when lenders accept the deed to the homeowners home in lieu of foreclosure and going after the homeowner for the deficit
For homeowners with equity in their homes, selling your home prior to foreclosure is the best option. They can sell their home in a timely manner and get their equity back from the sale of the home. Homeowners can discuss with their lender and tell them they are selling your home prior to foreclosure and see if they can delay the foreclosure process.
Qualifying For New Mortgage After Selling Your Home Prior To Foreclosure
Many homeowners end up selling their home prior to foreclosure to avoid a foreclosure on their credit report.
- If homeowners are selling your home prior to foreclosure and are successful in selling a home, chances are they want to purchase another home
- Qualifying for a new mortgage after selling your home prior to foreclosure can be challenging
- A home buyer can qualify for an FHA insured mortgage loan with only a 3.5% down payment and a credit score of 580 and prior bad credit
- Consumers can have unpaid collection accounts and still qualify for a home loan
- Consumers can have a prior bankruptcy and qualify for a home purchase loan after a two year waiting period
Home Buyers can qualify for a home loan with a prior foreclosure, deed in lieu of foreclosure, or short sale after a three-year waiting period.
Importance Of Timely Payments In The Past 12 Months
Borrowers can qualify for a mortgage with prior bad credit, foreclosure, deed in lieu of foreclosure, short sale, bankruptcy.
- However, mortgage lenders want to see timely payment history for the previous 12 months
- One or two late payments is fine on a non-mortgage related creditor
- However, almost all lenders want to see 12 months payment history on the mortgage payments
- A one time 30-day late payment on a mortgage payment may be acceptable
Homeowners selling your home prior to foreclosure, please keep in mind that they may have to wait 12 months prior to being able to purchase a new home if the lender has reported them late on mortgage payments.
July 12, 2020 - 4 min read