Have you missed mortgage loan payments because your income just isn't going far enough? There are several options you can consider to avoid going into foreclosure, including refinancing or selling your home through a short sale. Consider the following things when deciding whether to pursue a refinance or try to get your bank to agree to a short sale.
Refinancing a mortgage loan
Current mortgage rates are near historical lows, so refinancing could help lower your monthly mortgage payments if you bought a home when interest rates were higher. The best mortgage lenders take the time to run the numbers for a refinance so that you can understand your choices when choosing a loan.
Take time to compare mortgage rates from several mortgage lenders because loan deals can differ. Compare closing costs and other fees involved with doing a refinance. Try to get a Good Faith Estimate (GFE) from mortgage lenders so you can compare apples to apples.
So when should you refinance? Among other reasons, refinancing may be a good choice when:
- You plan to remain in your home at least until you recoup money paid out to refinance
- You have an adjustable-rate mortgage (ARM) and want to get a fixed-rate loan
- You want to refinance out of a 30-year mortgage loan into a 15-year loan
Refinancing and credit scores
Not everyone who fills out an application for a refinance is going to be approved for one. One thing that affects your mortgage application is your credit score, so spend some time reviewing your credit report to find areas that need to be improved. Mortgage lenders also look at how much of your income goes to repay debt. If your debt-to-income ratio is too high, your mortgage application is likely to be denied.
Short sale can keep you out of foreclosure
Refinancing may not help your financial situation, especially if you've suffered a loss of income or are experiencing some other financial hardship. So you may have no choice but to sell your home. But if home values in your area have declined significantly, you may be reluctant to sell at this time. However, selling your home may be the only way to improve your financial situation.
Consider selling your home in a short sale to avoid foreclosure. A short sale occurs when a mortgage lender agrees to accept less than the balance owed on a mortgage. Your mortgage lender may be willing to approve a short sale to recover some of what's owed on your home loan. That's a better solution for you and the lender than letting your home be foreclosed upon.
If you choose the short sale route, you must list your home and line up a borrower before approaching your lender. Be ready to provide a hardship letter that explains why you can no longer make mortgage payments and documentation to support a reduced value before a short sale is approved. Also, if you have a second lien on your home, that lender must agree to a short sale.