Foreclosure Bailout Loan Pros
Less Scrutiny on Finances
Unlike financing through traditional lenders, private lenders fund foreclosure bailout loans. These lenders typically require less scrutiny in their lending process. While a bank or other conventional mortgage lenders will not enter into a loan agreement with someone who is in default on a mortgage, foreclosure bailout lenders will. Many private lenders only require a specific amount of equity and a minimum credit score, typically around 500.
Quick
A foreclosure bailout loan is also called a hard money loan. Since the loans are based on the value of the property instead of your personal finances, you do not need to provide a pile of documentation to secure these loans. Therefore, the processing time is significantly less than with a traditional loan. When you need to act fast to save your home, a foreclosure bailout loan will quickly get you the money you need.
Foreclosure Bailout Loan Cons
Scams
Predatory lenders are out there waiting to take advantage of desperate homeowners. Unfortunately, there are many foreclosure bailout scams. Here are a few red flags you should be aware of when dealing with a company claiming to be able to help you with your mortgage: 1) They tell you to stop communicating with your lender. 2) They ask for payment upfront before you have seen any documentation. 3) They make "guaranteed" promises.
High-Interest Rate
Because these loans require less scrutiny of the borrower's personal finances, the interest rates are much high than loans through traditional lenders. A high-interest rate could easily make monthly payments more difficult and cause you to fall behind on payments again.
Harsh Fees and Other Penalties
Again, you pay for less scrutiny—literally. Origination fees for foreclosure bailout loans are much higher than through traditional lenders. You should also be aware of any potential harsh prepayment penalties or late fee penalties. If you cannot keep up with your loan payments, you could face hefty fees.
Other Options
Bankruptcy
Entering into bankruptcy will stall foreclosure proceedings throughout the bankruptcy case. This could buy you time to figure out how to get caught up on your mortgage. Bankruptcy can also restructure or discharge other debts allowing you to free up more money you can put towards your mortgage.
Loan Modification
A loan modification allows you to change the terms of your loan to accommodate your financial circumstances. For example, you can do this by extending the term of your mortgage or by decreasing the interest rate. If your lender is willing to work with you, this option could be the least damaging to your credit.
When facing foreclosure, it can be overwhelming to determine your next steps. You have options. If you are having trouble deciding which option is best for you, Veitengruber Law can help. We are familiar with foreclosure defense and can help you determine the best path forward for your situation.