Evaluating Your Risk of Home Foreclosure

The frequency of home foreclosure is on the rise nationwide, and many homeowners facing financial challenges may feel it is time to take preventative measures. There are several ways to examine your current financial situation to determine if you could be subject to foreclosure. By objectively considering all expenses, you can determine some tell-tale signs.

Credit Card Debt

If your amount of credit card debt has increased to the point where it is difficult to make the monthly minimum payments, it may be a sign that you will have trouble continuing house payments. Increased credit card debt can often be traced directly to a sudden and unexpected change in your financial situation, such as a medical expense, divorce, or job loss. Inability to make credit card payments is often a warning sign that out-of-control budgets may lead to foreclosure.

Monthly Expenses

A serious sign of financial trouble is if you are unable to cover all monthly bill payments with the amount of income coming in each month. Falling behind on your regular bills usually stems from job loss and inability to find another job with similar pay. In this situation, it may be best to contact a financial counselor. Professionals can help you determine all possible ways to keep your home by calculating your debt-to-income ratios and finding ways for you to cut expenses.  

Mortgage Payment Difficulty

Another red flag that can quickly increase the chance of foreclosure is if you are having a harder time making monthly house payments on time. Different states have different regulations in terms of the actions a bank can take towards defaulting mortgage borrowers, but there are typically a limited number of missed payments allowed before the lender will move forward in repossessing the property.

After the first missed payment, it is highly recommended to contact a financial counselor right away to determine ways to prevent further movement toward home forclosure. A second missed payment generally brings phone calls from the bank that should not be ignored. Discuss your situation clearly and ask about working with the lender to create an adjusted payment plan. Missed third and fourth payments lead to 30-day notices, followed by legal action from the bank's lawyers.

Home Value

Large numbers of home owners have found themselves in homes that are not worth as much as the amount of their home loans, popularly called "being underwater." Even if you are still able to make the monthly mortgage payments, these underwater homes are at a higher risk of foreclosure. These types of houses are also the ones that are usually offered for sale at a smaller amount than the lender was originally willing to accept, which is known as a short sale.

A short sale is typically one of the last efforts to avoid foreclosure proceedings. If you find yourself in this situation, refinancing the mortgage is a common preventative measure, but it is advised to meet with a housing counselor to determine if this will be the most helpful option. Home foreclosure is an often-frightening idea that any home owner wants to avoid. After taking the steps to evaluate your foreclosure risk, it is important to be candid about your financial situation to your lender. Lenders who know your situation are willing to work with you to keep you in your home.