Foreclosure Alternatives

Many families are scrambling to find foreclosure alternatives that will help them stay in their homes. There are a few strategies that you can use that can help. You can also hedge your liability in order to rent, build up savings and eventually make a down payment on another home. Here are some of the most common ways to avoid foreclosure.

Refinancing a Mortgage

Homeowners can use a refinancing plan to get out of mortgage payments that have become unaffordable. A refinance means the borrower has chosen to enter into a new contract. In refinancing, a lender agrees to "take over" the debt. These new lenders can often offer borrowers a more appealing debt structure. If you have a mortgage with a high interest rate, a refinance can bring your monthly payments down and save you thousands of dollars over the life of the loan. Refinancing is the first thing to do if you want to reduce your monthly payments.

Loan Modification

Some families can get help through a loan modification program. The U.S. government has helped to establish many home loan modification programs through the Make Home Affordable program. This government initiative seeks to help homeowners maintain their mortgages. If you are on unemployment, or have other financial challenges, you can use the loan modification program to help you avoid foreclosure. It helps to know your current credit score, have assets, have equity in your property or to be able to prove income through pay stubs. Private loan modification programs can be practical solutions as well, though borrowers need to read the fine print before signing a loan modification deal to assess any fees or related costs.

Deed in Lieu of Foreclosure

In a deed in lieu of foreclosure, the borrower does not stay in a home. Rather, the home is sold back to the lender and the borrower gets their debt written off for the full value of the property. This is a last-ditch effort to try to protect a borrower's credit. Some of the issues around a deed in lieu of foreclosure have to do with a loan to value ratio. The loan to value ratio is the amount that the property is worth, compared to the amount of the existing mortgage. A homeowner may want to hire a professional appraiser to get an accurate value estimate for a property before contemplating a deed in lieu of foreclosure.

Short Sale

The short sale is a similar way to avoid some of the debt associated with foreclosure. The short sale reduces the debt that is owed on the home. The home is resold to a new buyer. Homeowners often partner with a seller's real estate agent to understand the short sale and make sure it makes sense for their financial situation.

All of the scenarios above can be effective ways to shield a family from the full negative impact of a foreclosure situation. Often, it takes a combination of creative saving, informal borrowing and formal loan modification applications to help avoid foreclosure and eviction from a home.