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| 15 yr fixed | 3.06 |
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3 Lessons To Learn From Foreclosure
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- JR Hevron - MortgageLoan.com
There are many lessons to learn about real estate and mortgages from the foreclosure crisis.
According to the Mortgage Banker’s Association, 1 out of every 200 homes will be foreclosed on. Also, every three months, 250,000 new families will enter foreclosure.
These are scary figures and a very unfortunate situation for the families who will lose their homes and have to start their lives over again.
One part of the problem, of course, is that families were encouraged to live beyond their means with no-down payment loans and mortgages that they could not afford.
The other part of the problem is that members of many households lost jobs and wages and simply couldn’t keep up with their mortgage payments.
Whatever the reason for the foreclosure, there are things that could have been done both before and after that would have helped these homeowners to keep their houses.
Here are three key lessons that can be learned from their foreclosure experience:
1) Live within your means.
While this sounds like a simple lesson, it’s one that we all learn again and again. When it comes to mortgages, lenders are quick to tell us the maximum that we can afford to borrow. And while this may be a true number, it usually really means “the maximum that you can pay without having enough left over for things like vacations, retirement, or college tuition for the kids.”
One key to avoiding a situation where you can’t pay your bills is to realistically figure out what your expenses will be both right now and in the future. Use those figures to then figure out what the maximum is that you can comfortably afford to pay without neglecting the rest of your life.
And if the idea of creating a realistic and responsible budget scares you, you really need to take stock of your financial situation. It’s better to make your own rules rather than go through foreclosure and have a situation dictate what it means to live within your means.
2) Get a better understanding of the terms of your mortgage.
According to a Freddie Mac/Roper poll, six in ten homeowners wish they understood the terms and details of their mortgage better. If you haven’t read the fine print on your mortgage and don’t have an intimate understanding of the details, the chances that you will end up getting surprised down the line are pretty good.
Understanding your mortgage isn’t that hard to do. There are many basic guides all over the Internet that can get you up to speed in a few hours. And if you really can’t bring yourself to do it, at least have a third party financial planner check out your potential mortgage before you sign.
And it goes without saying, if you don’t fully understand what an Adjustable Rate Mortgage is and the risks that go along with it, don’t get one.
3) If you have issues paying your mortgage, talk to your lender
Lots of people who are having trouble paying their mortgages do their best to avoid talking to their lender. According to a Freddie Mac/Roper poll, oftentimes homeowners avoid contacting their lender because they are embarrassed and don’t believe that their lender can help.
In reality, your lender may be more interested in figuring out a payment plan with you than you think.
Lenders and investors typically lose $50,000 or more on a single foreclosure (20-60 cents on the dollar). With a loss like that, you can see that it is not in a lender’s best interest to go through with a foreclosure. There is more incentive for them to work something out with you.
More often than not, if you let the lender know “ahead” of time, you can work something out. Borrowers who can forge some kind of repayment plan are 68% less likely to lose their homes.
Foreclosure is an awful thing for anyone to go through, but it’s something that can be avoided if you learn from the homeowners who have been unfortunate enough to have gone through it.
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National Rates
| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.78 |
|
| 15 yr fixed | 3.06 |
|
| 5/1 ARM | 2.69 |
Rates may contain points
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