For many people owning a home is a top priority. This is because it comes with a number of benefits making it a great option for families who want to expand their financial portfolio. Despite the tax benefits and ability to call your place your own, foreclosure can happen to anyone. While the process can be frightening, it’s important to be prepared for the worst-case scenario. Below are the top reasons for foreclosure, and what you can do to avoid and prevent foreclosure.
What is foreclosure?
Most people opt for a home loan (also referred to as a “mortgage”) when buying a home. A mortgage refers to a loan used to purchase a home. The borrower agrees to pay the lender back, often in monthly payments (both the principal and interest amounts), for a set period of time. Mortgages are secured loans as the home serves as collateral. This means that when you default and cannot continue paying your mortgage, the lender can take your home to recoup their losses. The process to recover the amount owed on the loan by taking ownership of the mortgaged home is referred to as foreclosure. Foreclosure is the legal process by which the lender uses to recover their loss.
Top Reasons for Foreclosure
Foreclosure can happen to anyone for a variety of reasons. The following are the top reasons for foreclosure among Americans.
Subprime Mortgages:
This type of mortgage is generally given to borrowers who have low credit scores and do not qualify for conventional mortgages. A subprime mortgage is offered due to the risk of default on behalf of the borrower. The interest rate is often much higher. In addition to high interest, this type of loan often has an adjustable rate which means that the interest rate can increase at specified points in time throughout the mortgage payment period. This type of loan is a common cause of foreclosure as many cannot pay the mortgage payment when the home loan interest rate increases.
Unemployment:
The economy can be volatile and this is especially true within the last few years. Unemployment can dramatically reduce your monthly income and cause issues with your mortgage payments. This is especially true for those who do not have savings or other assets to draw from.
Credit Card Debt:
Americans are in debt and credit card debt is especially problematic. As of 2021, Americans had outstanding credit card debt in the amount of $910 billion. More than half of the country has credit card debt, often to pay for necessities not covered by their monthly income. Many people who have credit card debt and a mortgage payment opt for foreclosure instead of filing for bankruptcy. Depending on your unique situation, defaulting on one financial liability versus many can prove more advantageous in the long run. However, it’s important to talk with a skilled professional before you make any decisions.
Divorce:
Foreclosure can occur during a divorce for a variety of reasons. Heightened emotions and separate financial futures can result in the mortgage not getting paid. Defaulting on a mortgage can result in foreclosure despite the status of your relationship. Consider talking with a professional as soon as possible to avoid and prevent foreclosure on your home.
Medical Bills:
Medical debt is a growing burden on Americans. More than a third of the adult population carries medical debt, with over 60% of those adults having overdue medical bills. Similar to credit card debt, many Americans go into foreclosure due to medical debt. In fact, 13% of foreclosures nationwide are due to outstanding medical bills.
Foreclosure Options
If you are struggling financially and cannot pay your mortgage, there are options. The moment you realize that you cannot pay your mortgage, contact the best Los Angeles short sale realtors. A short sale is an effective alternative to foreclosure that allows you to bypass some of the financial consequences of a foreclosure. Contact Apex Resolution for more information as they are skilled in foreclosure alternatives.