4 Ways a Foreclosure Will Impact You in Birmingham
Besides the obvious strain and emotional impact the situation can have on your family and personal relationships, going through foreclosure will most likely ruin your finances and make buying another house next to impossible. From the clothes you wear to the car you drive, or even where you reside or work, it will have a residual effect on your life for 7 years
Home Buyers of Alabama is here to listen and give you options and can address any questions you may have about your specific circumstances and what you can do to avoid these ramifications.
By having a better understanding of the process and armed with options, you will be better equipped for taking immediate action. Time is not on your side with this. The bank will proceed and you will lose your house if you don’t take SOME kind of action. Don’t procrastinate and wait until the last minute to make a decision. We’re fast and have worked miracles in the past but don’t wait until the day before the auction to make the call!
Your future self will thank you for taking the time to learn more about your options during the process. We’ll cover 4 ways that a foreclosure will impact you in Birmingham.
Having a foreclosure in Birmingham or any other city for that matter appear on your credit reports and stays there for 7 years and will cause you to be considered a credit risk. Once this shows up on your credit report, it will impact your housing choices moving forward. Bad credit often leads to credit applications being denied for credit cards, loans and mortgages. Any financial institution that is willing to approve consumers with bad credit usually charges outrageous interest and fees than those who enjoy good credit. Additionally, it could possibly be a reason you are passed over for employment opportunities.
Among the top reasons for homeownership, home equity builds up over time as your debt decreases, and Birmingham property values rise. The equity built up over time could be in the hundreds of thousands of dollars. Equity is the difference between what your property would bring in the current market, and the amount that is still owed on the mortgage. Defaulting on a mortgage and going through foreclosure means you no longer have a house to have equity in. The bank takes it and you get zero, zilch, nada.
By taking actionable quick steps to resolve a pending foreclosure, you can make the decision on how your home is sold and for how much, on YOUR TERMS. Open your mail before it’s too late! Keep the lines of communication open so that you can be on top of what actions your lender may be taking and how much time you have to change the outcome in your favor. Whatever you do, don’t bury your head in the sand! After a foreclosure you’ll have no such control. Should your home sell for less than is due on your mortgage, you will still be required to make payments. This is also known as a deficiency debt and can it can have an enormous impact on your lifestyle and family. Imagine still paying for a car that was stolen or wrecked? That would eat into even the saviest of financial planners budget. Additional liability on your credit report will only increase the higher costs associated with having bad credit.
Foreclosure also impacts your housing options in many ways. In most cases, landlords will run a credit check as the first step when qualifying tenants. Your financial history will make you a higher default risk and may cause you to be passed over. Furthermore, your choices in financing will be limited should you wish to purchase another home. Fannie Mae is among the largest in the nation and offers a program with several financial benefits. If you’ve gone through foreclosure and need a mortgage lender like most of us, Fannie Mae will require a waiting period of 7 years before you will be eligible under their guidelines and just about 100% of mortgage lenders use Fannie Mae guidelines when they make their loans. You’ll end up having to buy a house via owner financing from a private investor at a higher interest rate and down payment causing even further financial stress. It’s a hole that is very hard to climb out of.
5 Ways to Avoid Foreclosure in Birmingham
If foreclosure is looming over you like a black cloud don’t ignore it. Open the letters your lender is sending you and see where you are in the process. Make sure you find your mortgage documents and read them thoroughly to know what to expect if you’re havign trouble making payments. If they have just begun to issue notices of default (NOD), they haven’t issued the foreclosure yet. But if you ignore the pending letters, that is no excuse in court. You may still have time to handle the situation and avoid a nasty foreclosure on your credit report.
Work with the Government and/or Bank
Contact your state to learn more about the foreclosure laws in your state and become informed. When you learn the time frame and the different steps of foreclosure and compare that with what letters from your lender, this will determine how quickly you need to move and make a decision. The Federal Government’s Housing of Urban Development department has a few programs that may offer you a way out of your situation. A lot of these programs are determined on the home’s estimated value versus how much is owed on the loan. HUD also has counseling options available to help you understand your financial situation and what options may or may not work for you. The bank may even be willing to make a loan modification. This is where the bank tacks on the amount owed to the back of the loan essentially increasing the length of the loan by however many months you’re behind. We saw this a lot during COVID.
Another way to avoid foreclosure is to take a long, hard look at your personal finances. Come up with a budget that will fit your basic needs like food, gas and mortgage. Hard decisions will have to be made. Skip the payments on optional and unnecessary items or luxury items, like credit cards or expanded cable packages. No more eating out and ordering Doordash every night. Maybe opt for a cheaper phone plan and cancel Netflix. You might have to consider ways to make extra money, such as obtaining a side hustle, or find odd jobs to do on social market boards or other local listing sites. You can join apps like Thumbtack or if you’re crafty, start an Etsy page. You may also want to take a look at your home furnishings and sell the higher end items to make a little extra cash. These options are great if you have a temporary hardship and are expecting to be able to make your mortgage payments more successfully in the next few months.
Rent It Out
A creative way to avoid foreclosure is to rent out your house to someone else. Their rent payment now becomes your mortgage and insurance payment and depending where you live, you might even make a few extra bucks. That means you would have to find somewhere else to live that is more affordable and move but it sure beats having that foreclosure on your credit report for 7 years and as a side note you still get to depreciate it on your taxes! (little investor quick tip for you) You could also rearrange your house to allow for a roommate to share your house or start to AirBNB a spare bedroom. Depending on the amount of your mortgage payment, that might be able to pay a large portion of it to make it more affordable. On the other hand, renting out your home may lead to additional headaches from your renters and potential damage to your home. Renting out your personal home that you have built an emotional attachment to and have memories in can be very rough mentally if you get the wrong renters. Just a forewarning and speaking from experience!
The most simple way to avoid foreclosure is to nip it in the bud, sell it and capture that equity baby! There are lots of ways to accomplish this like short sales, listing on the MLS with a realtor, selling to us and you can even get a little creative. There’s always investors waiting for short sales to come on the market. This is where the bank will negotiate a sale price with a buyer and sells your house short of what is owed on it. Trust us, the bank does not want to own your house. They will usually take an offer that is close to the loan principal, even if the home is worth more than what is left. This makes for a great investment opportunity for buyers with cash on hand. Selling on the MLS is never guaranteed and while you’re wasting time with the realtor you can have it sold and move on to the next chapter of your life in days! All you have to do is call us 😉
Facing the possibilities of a Birmingham foreclosure alone is stressful and inaction risks your financial future. Don’t wait until foreclosure begins, let Home Buyers of Alabama help lessen your burdens today. Send us a message or give us a call today at (205) 379-8185.
Hope this helps! If you have any questions about Foreclosure feel free to reach out even if it’s just to ask questions.