Minimize Your Foreclosure Risk

By Sheryl Landrum
Mortgage Credit Problems Columnist

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One of the best ways to avoid a mortgage foreclosure is to be aware of home loans that are vulnerable to a home foreclosure. Here are some tips to help you prevent a mortgage that could lead to foreclosure.
  • Deal with a licensed and reputable loan officer. The loan officer that has a license on the line is less likely to put borrowers in a mortgage that is foreclosure prone that a loan officer who is unlicensed.
  • Make sure your loan officer explains the loan process so that you fully understand how it works. Many homeowners who are now in danger of a home foreclosure express they really did not understand their home loan. Always get a Good Faith Estimate and a Truth-in-Lending Disclosure and make sure your loan officer reviews them with you thoroughly.
  • Work with a loan officer that will review loan options with you. If he or she can't explain the pros and cons of a loan, and why it is or isn't the most suitable for you, it's time to try another lender.
  • Understand the difference between your interest rate and your payment amount. If you have a variable rate mortgage, what will be the worst case payment scenario? Make sure you can afford the "worst case" before agreeing to the loan. Many homeowners now in foreclosure were not prepared for the higher house payments when their interest rates adjusted.
  • Is there a pre-payment penalty with the mortgage? Again, many homeowners facing foreclosure today have been unable to sell or refinance out of their current home loans because of prepayment penalties. A prepayment penalty can help you lower your interest rate and may be beneficial; however, a penalty that exceeds the time that your low start rate is in effect may be risky and could increase your risk of a home foreclosure.
Following the above guidelines will help you to prevent a future mortgage foreclosure. If you feel that you are in trouble with your mortgage, call your lender. Most lenders will work with borrowers to help them avoid foreclosure.

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