Mortgage debt problems can be stressful, but so is losing a home to foreclosure. For many people who have suffered financial hardship, bankruptcy offers a way to resolve debt problems and regain control over their future. When it comes to mortgages after bankruptcy there are some things that your Elk Grove bankruptcy attorney can tell you about how to secure a mortgage after a fresh start.
Mortgages After Bankruptcy
The first thing to know is that time heals, especially when it comes to your credit. You should wait at least a year or two before attempting to apply for a mortgage after a bankruptcy filing. This provides time for you to work on rebuilding your credit and prove to lenders that you are not a borrowing risk by establishing a solid payment history on credit accounts.
Next, start the planning process early. While you are working on your credit profile you can also start saving for a down payment. The more you can offer to put down at closing, the more likely a lender is to see you as a favorable borrower. Work towards saving 20% of what your loan is going to cover at closing before applying for a mortgage loan.
When your credit standing has been repaired and you have saved enough for a sizeable down payment, shop lenders. Just because you have filed bankruptcy in the past does not mean that you don't deserve a good loan with favorable terms. Since not all lenders are equal, speak to several different companies and find out what they are willing to offer you. Compare your mortgage offers and look for the one with the lowest, fixed interest rate with the best conditions.
Your home is your biggest asset and one that brings you much pride. Owning a home is a big responsibility that comes with a lot of work. Unfortunately, hard times can fall on good people through no fault of their own, leaving them at risk of mortgage debt problems and even losing their home to foreclosure.
Before you buy a home, take the time to follow some important steps to reduce your chances of mortgage debt trouble.
First, know how much you can truly afford before home shopping. Financial experts recommend keeping your mortgage payment to 25% or less of your total monthly income. Once you calculate an appropriate payment amount you can shop within your range.
Second, include an estimate in your mortgage budget for additional costs like insurance, taxes, and repair costs. These expenses should be factored into the overall cost of your home.
Third, only shop for homes in the range that you calculated to carry a mortgage payment of less than 25% of your income. Taking a quick look at homes above your range puts you at risk of overspending.
If you already own a home and are worried about mortgage debt, follow these steps to maximize chances of keeping your home out of foreclosure.
First, set up an automatic withdrawal of your mortgage payment through your bank. This ensures that you don't accidentally miss a payment. If you don't think you will be able to make your payment for any reason, don't let the payment lapse on purpose. Cut expenses elsewhere and contact your lender.
Second, don't wait to contact your lender. If you think you may soon or already have missed a payment, get in touch with them right away to discuss your options. Believe it or not, most lenders do not want the hassle of the foreclosure process either. Lenders are often willing to help you develop a plan to ensure you can make your payment or get caught up on missed payments.
Third, always work with a professional when negotiating with mortgage lenders. Contact a bankruptcy lawyer in Sacramento to discuss your options for resolving mortgage debt. You may be able to modify your existing loan or eliminate other debts through the bankruptcy process while you continue your mortgage loan payments.
A loan or mortgage modification in Sacramento is a way to adjust the terms of one’s current loan, by either reducing the interest rate or extending the pay period or sometimes both. The overall goal is to lower monthly payments on your loan to prevent default and in the case of your mortgage, to keep your home. Mortgage modification in Sacramento is typically attempted by you the individual initially, but a California bankruptcy attorney may be able to help when other attempts didn’t work. There are several different approaches to modification including: In-house modifications and Home Affordability Modification Program (HAMP) modifications
How to: In House Modification
In-house mortgage modification, or dealing directly with your loan servicer to modify your existing mortgage is often the first recommend step in a successful mortgage modification. In the wake of the housing crisis of 2007, many mortgage companies have created dedicated departments to help individuals save their homes. The home preservation specialists will usually send you or be able to direct you to an application for this process. These packages will ask you to include paycheck stubs, a letter explaining your hardship, your budget, and any other supporting materials.
Once you have found out what your servicer requires and turned in the material, it’s time to follow up and be persistent. It’s a good idea to check in on the progress of your modification once or twice a week and ask if the file is complete, see if anything has changed, and ensure that documents don’t need to be resubmitted. The entire process can be a long and taxing one, but the reward is well worth the extra work.
How to: HAMP Modification
Much like an in-house modification, HAMP is designed to lower your mortgage payment to make home ownership more sustainable and affordable. The main difference between the two forms of mortgage modification is that HAMP is a government program. Because the government oversees the Homeowners Affordability Modification Program, it adheres to program guidelines that are usually less stringent than those of the loan servicers themselves.
The process to apply for HAMP is typically the same as the in-house modification: contact your lender, and supply the financial documents and they will check to see if you qualify for the HAMP. If not, they will look at other programs that may help.
One thing to keep in mind is that the mortgage companies are not your friends and they aren’t there to make it easy on you; they are there to make interest of your home loan, plain and simple. If you have attempted to modify your mortgage and been turned down as many people have experienced, you still have options. Many individuals have been able to modify their creditor payments by filing for Chapter 13 bankruptcy which takes into account all your assets and liabilities and allows you to structure a payment plan through the courts. By filing for bankruptcy you can IMMEDIATELY STOP FORECLOSURE proceedings and give yourself time to plan your repayment over the course of 3-5 years.
As time passes and the Great Recession is further in the rear view mirror, home values are increasing and the economy is slowly showing positive signs. But for the average person, that may offer little consolation when a foreclosure notice is posted on their door.
Foreclosure rates in California and Sacramento may be lower than the national average, but there are still thousands of people at risk of losing their homes. Foreclosure usually is initiated when a homeowner misses mortgage payments. Then the lender may begin the process of auctioning off the property to satisfy the loan. This process can take some time, but that doesn’t make it any easier to stomach for the homeowner.
Fortunately, bankruptcy can help in many cases. If foreclosure is inevitable, then Chapter 7 provides a little bit of extra time before foreclosure to allow the homeowner to find other living arrangements or figure out a way to get a loan modification, or perhaps a short sale or deed in lieu of foreclosure. Other times, the home can be saved by filing for Chapter 13 bankruptcy.
The Chapter 13 option lets the homeowner pay off the “arrearage” or late payments over many months in addition to paying the ongoing mortgage payments. In order to do this, the homeowner must have enough income to make these payments. A Chapter 13 bankruptcy plan can also provide relief if the homeowner has a 2nd or 3rd mortgage. If the first mortgage is secured by the entire value of the home, a bankruptcy attorney may be able to get the court to “strip” the 2nd mortgage and make the debt “unsecured.” This means that, depending on the Chapter 13 plan, the homeowner may not have to pay any of the 2nd mortgage at all. The Chapter 13 option requires a commitment, but it can be a lifesaver to allow a homeowner to keep their home and get rid of bothersome unsecured debt.
Another aspect of bankruptcy that is important to foreclosure issues is the automatic stay. The automatic stay makes it so creditors are not allowed to continue or commence any collection activities, which includes foreclosure. A simple Chapter 7 bankruptcy lasts about three to four months. So, a Chapter 7 can easily postpone a foreclosure by that much time. However, a mortgage lender has the option to request that the court “lift” the automatic stay. If the lender is successful, the stay no longer stops the foreclosure. But even in that situation, the homeowner could probably buy two months of extra time in the home. A chapter 7 is appropriate in this scenario as long as the debtor has additional debts that need to be discharged.
The bottom line is that if foreclosure is imminent or on the horizon, it is probably a very good time to consult with a bankruptcy attorney. Delaying the foreclosure or avoiding the foreclosure altogether are certainly possibilities, but it doesn’t happen with the simple filing of a form. A bankruptcy is a complicated process and requires knowledgeable legal counsel in order to be successful.