There is a stigma associated with having a home or other property lost through the foreclosure process. Those who have lost property this way know the heartache, frustration, dread, anxiety, and all the other feelings of doom and gloom that are commonplace with foreclosure.
Although most foreclosures happen during economic recessions, it may be surprising to find that homes are lost through foreclosure during the best of times. And it may also surprise you to learn that many people lose their property, not because they knowingly take on more debt than they can handle, but because there are many circumstances that may arise that can cause a property owner to get behind on his payments.
Furthermore, foreclosures are not relegated to any one class of people. Even the richest of the rich can find themselves in financial trouble at one time or another, losing their homes and/or their investments properties through the foreclosure process.
A foreclosure is a heart wrenching event and can be devastating to the psyche. Without a doubt, many who go through the process do everything they can to pull their property out of foreclosure. Some succeed. Some fail. But there are ways to save your property if you are willing to take the necessary steps, many of which are hard and time consuming.
First of all, many people can't admit to themselves that they no longer have the income or other resources to continue paying their mortgage. Or they can pay the mortgage if they let something else go, like the new car they are paying for, a membership in an exclusive country club, or an expensive hobby. Believe it or not, there are those who think certain extravagances are more important than having a home to live in, so they worry about paying their home loan after they pay their other expenses. They will pay the car note, the country club membership, or spend lavishly on their hobbies before they pay their mortgage note. It may sound incredulous, but it's true.
Then there are those who buy a home and immediately get deep in dept trying to furnish it by buying furniture and appliances. This is especially true for first time buyers who don't have a lot of furniture in the first place. So they immediately take out second loans and/or max out their credit cards to purchase furniture and appliances. This, in many cases, is the beginning of the end. They don't take the time to furnish the home over time as they live in it. Furniture and appliances are expensive, especially if you buy them all at one time. Don't start your home ownership experience buying furniture and appliances with the money for the mortgage payment. If you do, you may find yourself on the fast track to foreclosure.
When you buy a home, you must understand that you have to make the monthly payments each and every month. Once you get a month or two behind, it is very hard to catch up. Most people buy for a home using at least a third of their monthly income to qualify and sometimes as much as one half. This is serious money. When buying a home, you should go into the process understanding that the mortgage payment should be your number one priority. And don't forget the taxes, the homeowners insurance, your monthly utility bills, food, and clothing.
Lenders usually require that you have at least two or three months worth of mortgage payments in reserve before closing your escrow. The reserves are critical when buying a home, especially if you are not accustomed to making such large monthly payments. Money can get very tight within the first year or so and without those reserves, you may quickly find yourself behind and in foreclosure.
At one time, lenders persuaded home buyers to take out adjustable rate mortgages in the hopes that the buyer would get raises on their jobs. That is no longer a valid ploy. As we have all seen lately, many people are losing their jobs, taking cuts in pay, and facing reductions in the number of hours they are allowed to work. Today, although adjustable rate mortgages are still offered to consumers, and in certain cases they make good financial sense, a fixed rate mortgage may be the best way to buy a property for most people because with a fixed interest rate, you will begin and end with the same payment.
And on top of that, homeowners have found themselves owning more on their properties than what they are worth because property values have dropped dramatically over the past few years. This makes it almost impossible to refinance their loan to get lower payments, especially if their credit history show that they have been late on numerous occasions.
These are not the only reasons people lose their homes through foreclosure, but this gives you an idea of how important making your mortgage payments is. A foreclosure is a very serious hit on your credit and will substantially drop your FICO score for at least ten years or longer.