Foreclosure is a very real fear for a large cross-section of America. A Forbes survey conducted last year before the pandemic struck reported that around 78% of the workforce lives paycheck to paycheck. That number has probably increased if anything. Balancing a mortgage and the rest of your finances can be tricky, because if you drop a ball you may lose your home.
The following are the top six reasons people fall into foreclosure, and what you do if you find yourself facing one of these situations. Remember, you have options and there are mortgage relief programs out there. Don’t live in fear, get educated, and prepare yourself with an action plan if you think foreclosure is on your financial horizon.
Loss of Job
Now more than ever, sudden unemployment is a leading cause of foreclosure. If you are living paycheck to paycheck, the sudden loss of a paycheck can leave you instantly in debt and struggling to feed your family let alone pay your mortgage. Even standard unemployment applications are backed up because of the high amount of lay-offs and firings. Without an income, it is no longer viable to pay a mortgage, but you still need a place to live.
If you find yourself in this situation carefully check your mortgage to see if you purchased unemployment insurance or find out if your mortgage provider offers a deferment period that will allow you enough time to get a new job and get back on track. Whatever you do, don’t just blindly miss a payment and give up. If you reach out many banks and lending agents will work with you while you search for meaningful employment.
Unexpected Medical Expenses
No one plans to have a health emergency, and yet thousands of people experience a health crisis every day across America. Pre-pandemic medical expenses caused about 13% of all foreclosures, in the current COVID-19 environment that number has likely skyrocketed. Illness plays a large role in foreclosure and bankruptcy because at the same time you are too sick to work, you are likely accumulating large amounts of medical bills which can hit your family’s finances like a sledgehammer.
Adjustable-Rate Loans
A lot of homeowners find low adjustable rate mortgages attractive, but they don’t fully understand the implications of the variable rising. Suddenly the rate will jump up leaving them with an expensive mortgage payment that they cannot keep up with on a monthly basis. Before giving up on your home, it is better to contact the bank and see if refinancing your home is an option. If you refinance your home you replace your old mortgage with a new one, and choosing a fixed variable rate may be a more affordable option.
Divorce
Most couples purchase their home based on their combined total income. Therefore, when a couple divorces it may become impossible for the spouse who is given the home to keep up with mortgage payments. Even when a divorcing couple decides to sell a home they can end up in foreclosure because the sale does not occur fast enough for the dueling parties to keep up with monthly payments. Keep in mind that until your name is off the deed, it is possible to have the foreclosure on your name even if you are the divorced party that left the home.
Job Relocation
Job relocation is another cause of foreclosure because people make fast plans to move but are not able to sell their home as quickly as they hoped. When a job offer comes up unexpectedly couples are forced to take on a second mortgage or rent in a new city or town. Most plan to pay two mortgages for a few months, but don’t budget for the possibility that their old home may not sell. After months pass paying two mortgages causes a major strain on their finances forcing them to foreclose on their previous home. Selling a home for cash or dropping the asking price to just cover the minimum mortgage amount is a good way to avoid foreclosure if possible.
Multiple Bills Piling Up
Finally, sometimes the expenses of life simply catch up with homeowners. Credit card debt, large utility bills, medical bills, grocery bills, and gas bills are just a few of the many bills that can result in homeowners drowning in debt. At this point, it is a good idea to talk to a debt relief professional to see if options like debt settlement or debt consolidation are a good choice for you. Placing your debt in one location may make it easier to manage and free up enough capital for your mortgage payment to once again become affordable.