This was originally published on Monday, October 7, 2013, in the Pacific Daily News. Click here to subscribe to the PDN.
Question: I currently am going through some rough financial times and I may have to foreclose on my home. I really want to keep my home. Can you advise me on any other options I may have?
Answer: Many people in today’s economy are facing this very hard and emotional decision. A foreclosure on your credit report stays on your report for at least seven years and makes it very difficult to secure a loan.
• Talk to your lender. The first thing to do is contact your lending agency. Inform them of your situation and ask if there are options available to you. You should do this as soon as possible, especially before you have missed a mortgage payment. Time is crucial. Your lender may be able to:
• Modify your loan. A loan modification according to the U.S. Department of Housing and Urban Development is “a permanent change in one or more of the terms of a borrower’s loan.” Modifying your loan can lower your payments by decreasing your interest rate, the duration of the loan or other factors.
• Refinance your home. Perhaps you purchased your house at five- or six-percent interest. If your credit score still is good to excellent, you may take advantage of the low interest rates that financial institutions are now offering. You may qualify to pay less interest, lower your payments or even convert your loan from a 30-year mortgage to a 15-year mortgage.
• Repayment plan. If you have been delinquent on your payments, this may be an option the bank proposes to resolve your delinquency. The bank can add on your past amounts and fees to your current payment for a specified amount of time. This will raise your payments, so if you are already having troubles paying your mortgage, this may not be the best solution.
• Forbearance. This option is similar to a loan modification but is temporary and not permanent. The financial institution may reduce or suspend your payments for a quantified time period. At the end of that time, you will be required to resume your regular mortgage payments. Forbearance works best for temporary situations such as a loss of a job or health issues.
• Home Affordable Modification Program is a program offered by the federal government to modify your mortgage payment and takes your income into consideration. You must be eligible to use this program and your lending agency can help. You can visit the federal government’s website, http://www.makinghomeaffordable.gov, to find out if you are eligible.
If you used the Federal Housing Administration or the Veterans Administration to secure a loan, you may have other options than foreclosure. Contact that agency along with your financial institution.
Before talking to any agency, have all your financial records ready, be honest when talking to your financial institution, try not to be emotional, and contact a financial specialist and/or a foreclosure lawyer. Remember, time is of the essence and sometimes foreclosure may be the best option.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.