Can You Refinance to Avoid Foreclosure on Your Home?

With recent events and the current economic climate, some homeowners are struggling to make payments on their mortgages. If you are unable to make payments on your home loan, you may be at risk of foreclosure. Fortunately, there are steps you can take to avoid foreclosure, including refinancing your home loan.

Remember, whatever action you take, it should be done as soon as possible. Any delay means your lender may initiate the foreclosure, making it more difficult to address. Let’s look at how to refinance your mortgage to avoid foreclosure and examine the pros and cons of choosing this option.

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Refinancing a Delinquent Mortgage

To qualify for this option, it’s important to act quickly and communicate with your lender early on. Whether this is a viable option for you depends on what stage you are at in the process and whether your mortgage is delinquent or in default. In short, delinquency is when you’re late making payments. This can happen as soon as you miss one payment or fail to pay the bill in full by the due date.

Mortgage default is the next step. If you continue to be delinquent on your mortgage, your loan will default, and the lender may begin the foreclosure process. Typically, a lender will initiate the process after 3 missed payments or 90 days. To qualify for a refinance, a lender is more apt to work with you before you default, while still early in the delinquent stage. Once a lender begins the foreclosure process, trying to refinance becomes more costly and complicated.

Speak with your lender as soon as you miss a mortgage payment to increase your chances of them working with you. If you wait too long, refinancing may no longer be an option.

How to Qualify for Refinancing

To qualify for a refinance, there are requirements you must meet. When you refinance a home mortgage, you are replacing the original loan with a new one. Since you are still applying for a home loan, you must qualify for approval as with the original loan. How much equity your home has built determines your eligibility for a refinance and what type of loan you can get.

It’s also important to refinance as soon as possible to avoid further reflection of delinquent payments on your credit score. If you wait too long, your credit score will take more hits. The better your score, the better your rates. Don’t miss out on better interest rates; start the process now.

Starting the Process

As mentioned, early communication with your lender is key. Typically, lenders are willing to work with you to help you get caught up on your loan. A foreclosure is often a last resort, as they are costly and take time.

If you are considering refinancing your home loan, gather the necessary documents and prepare for the application process ahead of time. You will need proof of employment, income, and assets. Make sure to shop around before applying for a new loan. Once you find a lender with interest rates and terms you can afford, apply online and begin the underwriting process.

Since you are applying for a new loan, you don’t have to refinance with your current lender. Consider applying with a new lender for better rates and terms. It may be time to join a credit union and discover why they are known for offering better rates and excellent customer service.

For example, Solarity Credit Union offers competitive rates and flexible loan terms. They make refinancing your mortgage fast, easy, and straightforward. You can speak with one of their Home Loan Guides today and learn what your best options are to avoid foreclosure.

Pros and Cons

As with every financial move, there are pros and cons, risks and rewards. When deciding whether refinancing your mortgage to avoid foreclosure is the right move for you, you need to consider both.

Let’s look at a few of the advantages and disadvantages of refinancing so you can make the best decision for your circumstance.

Pros:

Refinancing is not as detrimental to your credit report as a foreclosure.
You can stay in your current home and avoid moving.
You can start fresh with a new loan, with new rates and terms.
You have the option to switch to a lender with better rates and services.

Cons:

A new loan means paying closing costs and fees.
Delinquent payments reflect on your credit score, and you may pay more in interest.
You must be able to prove your money hardships are temporary.

If you are still uncertain what the best move is, contact your lender and discuss your options. They can guide you through the process and help you better understand these options so you can make the right choice for your situation.

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Other Alternatives to Foreclosure

Other alternatives to discuss with your lender include:

Mortgage modification: Your lender may modify your loan to extend the loan term, reduce the interest rate, or reduce the principal on balance.
Forbearance: In the case of a short-term financial hardship, your lender may temporarily lower or suspend payments.
Repayment plan: You can set up a plan to make monthly mortgage payments along with a portion of past due amounts to catch up.
Reinstatement: You work with your lender to pay past mortgage payments as one lump sum, including any penalty fees and interest.
Short refinance: Your lender works with you to forgive part of the outstanding debt and refinance the remaining debt into a new loan.

Ultimately, choosing to refinance your mortgage or pursue one of these other avenues enables you to stay in your home and avoid foreclosure. Remember, act fast and communicate with your lender. You can also refinance with a lender offering better rates and come up with a plan to make these new payments regularly so you don’t default on the loan. Choosing a credit union for better rates may be exactly what you need to use these extra savings to catch up on your loan and stay in your house.