Most people these days know that foreclosure, short sale, or deed-in-lieu are the big three weapons that lenders use to prevent further loss. but there is a lot more in the lenders’ arsenal. Other remedies for troubled homeowners include:
- Modifying the length of the loan or the interest rate
- Waiving penalties and fees
- Deferring payments to the end of the loan and making it longer
- Applying past due amounts to the loan balance and slightly increasing each monthly payment
- Holding a fixed rate on a loan ready to adjust
- lengthening an introductory payment or interest rate or
- granting temporary forbearance to stop the payments.
Presenting Your Request to the Lender
Not being social service agencies, banks do not widely advertise this “softer” side. To bring it out and allow a workout, you need to make a good case for yourself: make the lender confident that this will stop further loss. Just as is true with all credit issues, contact your lender at the first sign of trouble. Your steps might include:
- Explain why you are in trouble and why you think the problem is temporary. If your interest rate changed and increased your payment, you need to show evidence you paid on time before change. If your problems were caused by job loss, illness, or family circumstances, you need to show that it is likely you will have a job soon or that the crisis has passed.
- Show the bank that you have been trying to work things out on your own, through job hunting, part time jobs, or by reducing your living expenses.
- Present a specific proposal to the bank, with alternatives, verbally and in writing. A non-profit housing counselor, a real estate attorney, CPA, or other qualified source may be able to offer you some suggestions about what to propose. A typical request might suggest lengthening the loan, making it fixed, not adjustable, and lowering the interest rate. If your proposal will lower your payment by $500 per month, you need to show how this will help you catch up and be on time in the future. A good faith payment might sweeten the pot if you are way behind.
Good preparation will increase the chance that the lender will accept your proposal. Make sure to discuss with the lender representative how the new agreement will affect your credit record. Your goal is to have your new payments reported to the credit bureau as “Pays as agreed,” but make sure you understand the credit ramifications before you finalize the terms.
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