Mortgage default is a slippery slope. Once you miss a mortgage payment, your lender begins adding fees to your account. In addition to late fees, the Federal Trade Commission warns that lenders can tack on “default-related fees” for such services as property inspections and property maintenance. This allows the lender to prepare your home for foreclosure while leaving you holding the bill. If you're facing mortgage default, you have options to save your home.
You're facing imminent default if your mortgage is not yet delinquent but you are financially unable to continue making the payments. Imminent default can occur for a variety of reasons. If your financial situation changes, such as through a job loss, divorce or family illness, you may no longer be able to afford your mortgage. Imminent default can also occur if your mortgage terms change – leaving you with a higher monthly payment that no longer fits into your budget.
Loan modification is one way borrowers facing imminent default can save their mortgages. When your lender approves your loan modification, it changes the terms of your loan to lower your monthly payments and help you save your home. You don't have to already be in default to qualify for a loan modification. Your lender will compare your current income to your mortgage payment and take any additional financial hardships into consideration. If you are clearly in imminent default, your lender may approve your modification request while your loan is still current.
You must meet specific criteria to be considered in imminent default. Requirements will vary depending on your lender. For example, if your loan is serviced by Fannie Mae and you have more than $25,000 in cash reserves, you cannot be considered in imminent default . Even if your mortgage payment exceeds what you can comfortably afford on your income, your lender will expect you to exhaust your extensive savings before approving you for aid. Lenders generally maintain software programs to help them determine if a borrower is at risk of imminent default. They use these programs as a tool during the loan modification process and also to identify pre-foreclosure properties.
If you can no longer afford your mortgage and are at risk of imminent default, it's crucial that you contact your loan servicer immediately to discuss your options. If you do not qualify for a loan modification, your lender may still approve a short sale of your home. In a short sale, the lender gives you permission to sell the property for fair market value when you owe more on the property than it's currently worth. A deed-in-lieu of foreclosure – an agreement between you and your lender in which you turn over the deed to your home in exchange for a release from your mortgage – may also be an option.
- Federal Trade Commission: Trouble Paying Your Mortgage?
- Bankrate.com: Can You Get an Obama Loan Modification?
- Fannie Mae: Updates to Imminent Default Definition and Determining Market Value for Preforeclosures
- DSNews.com: Fannie Expands 'Imminent Default' Test, Issues Short Sale Value Rules
- Aol Real Estate: Understanding Short Sales
- U.S. Department of Housing and Urban Development: Deed-in-Lieu Frequently Asked Questions
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