Can You Afford to Keep Your Home? When Foreclosure Threatens
Are you unable to pay the mortgage payments or you have feeling that soon you will be unable to make the mortgage payments? If yes, then the most important question comes that can you afford to keep your home? Apart from the emotional attachments you need to consider the economic factors when foreclosure threatens. Before deciding that you can afford your house or not, you need to take stock of your financial situation that may have not been changed since you purchased the house. Here are the basic steps:
- Determine if you have equity in your home
- Decide if you can afford mortgage payments
- Reduce you debt load.
- Do You Have Equity in Your Home?
The equity means that difference between what the home owes and what you can sell it for. Unfortunately, most of the homeowners have negative home-equity that means you will have to bear a loss on the sale of your house. Getting the exact sale price of your home may be little bit difficult. You may need to get the services of foreclosure consultant. If you hire some real estate agent, then you should go for a market comparative analysis (CMA). Market Comparative Analysis will help you get the right price for your home.
Deciding Whether to Stay or Go
If you feel that you have some equity in your house then you may try to stay in your house and pay the mortgage, but if you have negative equity, then it is better to move on. But, if you can afford your mortgage payments by reducing your debt load to make them affordable then you may opt for staying
Reducing Mortgage Payments
In this case you may opt for loan modification and a loan modification consultant can help you getting your debt load reduced. It probably makes sense to give up your house if its current value is 25% less than what you paid for it. That’s because your house’s value would have to appreciate by as much as it dropped for you to come out even, and that will likely take several years
Consider the Real Estate Market
If you have some equity in your home and you are upside down on your home, take stock of the real estate market before making decision to walking away from your house. If there is slum in the real market and you think it may not be able to recover in coming few months and you may be not be able to manage making the payments, let your home go. If the real estate market seems to be perking up it might make sense to keep your home even if you have negative equity.
No formula can predict the future behavior of real estate market. If you are an experienced real estate, then there are some signs that can help understanding the future of real estate market.
- If some or all of the following factors are present, there’s a good chance the market is not headed for a speedy recovery:
- a collapse of the subprime loan market
- high numbers of foreclosures predicted to continue for a year or two
- an accelerated decline in residential real estate values
- an overall tightness of the credit markets
- a high likelihood of recession, or
- Consumers who are tapped out and increasingly unable to make good on any of their debts, mortgages included.
Are Your Monthly Payments Too High?
Many homeowners face foreclosure due to the loss of substantial income after buying their home. Some of them had the expected an increase in the home value, allowing them to replace an unfavorable mortgage with a more favorable one. Regardless of the trouble that you have, you need to think before making any kind of decision. You need to figure out that you can afford your monthly mortgage payments for not. There are several good options for determination and you can choose the best that works for you.
According to the housing industry consideration a loan is favorable if your monthly mortgage payments do not change somewhere between 29% to 33% of your gross monthly income and this is called mortgage to income ratio. If your annual gross income is $75,000 then your mortgage payments should not be greater than $2,062 if you use 33%. They should not be greater than $1,562 if you are using 25% income to debt ratio.
Use an Online Calculator
There are a number of website that are free services for online mortgage calculator. They are very easy to use and understand the results. If you further need to understand the calculation they can help you as well.
Make a Budget
Another way to determine the affordability of your home is to make your budget. Have a look at the income and expenses and think if you can reduce some your expenses or can add some other resource of income.
Letting Go of Your Home
If you determine that it does not make any sense to retain your home, be brave and let your home go. In this way you will be avoiding a number of complications and hardships that you may be facing in case of staying in your home.