Billions of dollars of home loans are predicted to go into default in the coming years; according to RealtyTrac, the month of August of 2007 alone saw foreclosure filings increase 36% to 243,947 from the month prior, a 115% increase from August of 2006 (RealtyTrac, 2007). There’s no question that the housing boom in most areas of the country is over, and many homeowners are finding that out the hard way. Adjustable interest rates are recasting, sending payments through the roof for many unsuspecting homeowners. With the inevitable firestorm, there are some things you need to know if those mortgage payments are getting more and more difficult to make each month.

1. Make sure you don’t have any other options – People tend to wait until the big bad banker is knocking on their doors before they’re motivated to take action; don’t be one of those people. In many cases there may be an option open to you that you hadn’t considered or never heard about before. Do your research at the first sign of trouble. That doesn’t mean wait until you lose your job and can’t make your payments. It means if you’re over 80% LTV, you need to create a “What if plan.” What if you lose your job? What if the real estate market in your area tanks (again)? What if you get into a car accident and can’t work? You may think there’s no chance of you foreclosing on your home, but fortune favors the prepared mind.

2. Call your bank right away - In most cases, your bank really, really does not want to foreclose on your home, especially if you don’t have a good amount of equity built up, which is likely the case if you’re facing foreclosure. If the bank decides to foreclose, they have to deal with all kinds legal fees and holding costs. Then, if the bank decides to sell the home at auction, it’ll go for 10-30% or more below market value. If you have a $300,000 mortgage and your home is only worth $300,000, in a good scenario, the bank may only be able to recoup $270,000 or less; that’s a $30,000 loss. If the bank stands to lose less money by you not making your payments for a little while, or, working out a deal with you, they may just take it.
3. Prioritize your bills – In our deceptively titled post, How to Get Away With Not Paying Your Bills, we go over all the details of how to prioritize which bills you should pay and which ones you can let slide for a bit if money gets tight. Everybody should read this post, but especially if money’s tight.
4. Post a Comment – We can offer some advice, and who knows, maybe someone reading has gone through the same thing and could lend some support or a helping hand. If you’re uncomfortable with that, contact us and we can offer some advice.

Even though you may think you have plenty of equity in your home, you should just double check; many areas around the U.S. are soft markets right now, and values may be going down even further, so be sure to keep an eye on things.

As always, if you have any questions, get in touch with us and we can offer some assistance.

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