The word ‘foreclosure’ can strike fear into the heart of any homeowner, but what exactly does this term refer to and what could it mean for you and your home? Keep reading for some key facts about the process and for advice on a possible alternative if you find yourself facing the prospect of foreclosure.
The process explained
When you enter into a deal with a mortgage lender to borrow money to buy a home, you sign an agreement to give this company a security interest in your property to guarantee the repayment of the mortgage. This means that if you stop making your repayments, your home can be sold without your consent to enable the lender to recoup the money they loaned to you. This is where foreclosure comes in. Foreclosure is the legal right of a lender to take ownership of a property and/or the right to sell it and use the money generated to pay off the outstanding mortgage.
What it means for you
As property cash buying specialists Fast Sale Florida point out, foreclosure should only be seen as a last resort because there are a range of penalties associated with it that can affect you for many years to come. For example, you’ll need to leave your home – and you won’t be able to do this on your own terms. Once your bank has decided to go ahead with this process, the company is likely to evict you so that it can sell the property as soon as possible.
In addition, foreclosure can seriously damage your credit score, which can prevent you from making important purchases in the future – including securing the money you need to buy a new home. A low credit score also prevents you from accessing the most competitive interest rates on loans. Unfortunately, it can take a long time to recover from a poor credit rating.
Another problem with foreclosure is that it means you lose equity in your property. Banks often sell homes in public auctions, using the amount they make to pay off the balance of the mortgage. If there’s any money left over once the loan and all penalties and fees are paid, you can keep it. In many cases though, there is little or no equity left over.
An alternative to foreclosure
Facing the threat of foreclosure can undoubtedly be an extremely worrying time, but there may be an alternative route for you to take. If you’re struggling to repay your mortgage, you may wish to consider opting for a short sale. This involves entering into an agreement with your lender that enables you to avoid foreclosure and it can often be a better solution both for homeowners and banks.
A short sale involves selling a property as quickly as possible for a fair price, and it can help you to avoid many of the penalties associated with foreclosure.
The important thing if you’re in financial difficulty and are at risk of losing your home is to make sure you understand your options and not to assume that foreclosure is inevitable.