Solutions to Mortgage Default

December 17, 2021 By Eden Smith

A default on your credit report could be you if you’ve missed a payment, ignored a debt, or missed one.

Many lenders won’t approve mortgages if there are defaults in credit files. This is particularly true for high-street applicants, where typically only those with clean credit records are approved.

This means that even if you have been turned down for a mortgage in the past because of a default, it might still be possible to find another lender.

If your mortgage with defaults, you don’t have to lose heart if your mortgage has already defaulted. There are many solutions to this situation. You can either save your home or get out of it gracefully.

Here are our recommendations to solve your mortgage default crisis

  1. Work toward Mortgage Reinstatement

It is possible to restore your mortgage after the default period ends and avoid foreclosure. Reinstatement of your mortgage refers to moving it from default and activating your former home loan agreement.

To reinstate your mortgage you will have to pay the amount you owe and any fees, interest, or costs, as well as the total loan cost. For your mortgage to be reinstated, talk to your lender for the complete payment.

This is an excellent solution for those who have been unemployed for a short time or were in financial hardship because of other obligations or bills.

  1. Talk to your lender about forbearance options

The lender may offer forgiveness on your mortgage. This means that you might be able to borrow some money while you work out a solution.

Your lender and you will enter into mortgage forbearance. This is a binding agreement. Lender promises to not foreclose on your house and will allow you to pause or reduce payments for a certain period. After this time, you will be required to continue your mortgage payments as well as repay the outstanding balance following an agreed-upon payment schedule.

This can be a great way to save money if your job isn’t available or you have to make temporary financial cuts. You should make sure that you take advantage of the grace period to save as much as you can, and then plan how you’ll repay the full amount.

  1. Reach Out to HUD

You might not be able to get forbearance from your lender or it may not be the right option for you. The Department of Housing and Urban Development could be able to help. HUD has certified loan- and housing counselors, who can examine your financial situation as well as your mortgage with defaults

Status and come up with a mutually beneficial solution.

A HUD counselor can help you to resolve your mortgage default.

  1. Decide on a repayment plan

A repayment plan can be negotiated with your lender. This is not the same as forbearance. You won’t be allowed a grace period during which payments are temporarily lowered or paused. Instead, you will be required to pay an additional amount to make up the remaining balance.

Consider your financial situation and decide how much extra you can pay. Talk to your lender about how you will make up the outstanding balance.

Your lender will work with you to devise a repayment program that fits your budget. However, it is worth reaching out to your lender and taking responsibility for the resolution of your defaulted loan.

  1. You might consider a loan modification

A loan modification helps people who are having difficulty making their payments receive permanent relief. It can be one of these or any combination of them:

You can extend the term on your loan to 40 years. While it will take longer to repay your loan, a remortgage of your payments for a longer-term will make your loan more affordable. To repay your loan in the same period, you can pay more towards the principal.

Your servicer can set aside some of your principal if your payments are late or you owe more than the value of your home. The excess principal is not subject to interest and will be due when the remaining loan balance is paid.

You will see the modification on your credit report. It could affect your credit score or your ability to refinance a loan or purchase a house. This modification looks better than a foreclosure on your credit and you can keep your home.

  1. Choose a Short Sale

A short sale is something to consider if your house is not within your budget and you have no other options. To get out of your mortgage, a short sale is when your home is sold at a price less than your lender owes.

Your home will be listed on the market to sell as a possible short sale. Once you have made an offer, your lender will accept it. If they do, the money paid by the buyer for the house will be added to the mortgage balance.

Short sales won’t bring you any extra money. You will need to convince your lender to agree to these terms. This can be a great way to get out of a difficult situation, especially if your mortgage payments are not affordable.

  1. Deed instead of Foreclosure

Deed instead of foreclosure is when your house is voluntarily transferred to your lender to avoid foreclosure. Although you will still need to find a place to live, there are some advantages to this process over traditional foreclosure.