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types of mortgages

There are many types of mortgages from which you can choose. Which type you choose usually depends on the length of time you think you'll be in your home or the other financial obligations you have. If you think you'll be in your home for many years, then you may want a fixed rate mortgage with the lowest interest rate you can get.

There may be other considerations, however. What if you have kids who are going to be entering college in 10 years? In that case, you might consider getting an adjustable rate mortgage, or a mortgage with a balloon payment so you can keep your payments low for the first few years in order to save for college. Once the kids are out of college, you can refinance at the current rate. If you don't think you'll be in your home for that long, then you may also want to look at other options.

fixed rate mortgages

This mortgage offers an interest rate that will never change over the entire life of the loan. If you lock in a rate of 7 percent that calculates a payment of $1,247 per month, then you know that in 20 years you'll still be paying $1,247 per month. The only things that will change will be the property tax and any insurance payments that are included in your monthly payment. The length (known as the term) of your fixed rate mortgage can be 15, 20 or 30 years. These terms have an affect on the various benefits you'll get from your mortgage.

30-year fixed-rate
The 30-year term gives you the maximum tax advantage by having the greatest interest deduction. While the fact that you're paying more interest may not seem like a benefit, you make lower payments with the longer-term fixed-rate loan and you get a bigger tax deduction. If you will be staying in your home for many years (especially if you think your income may not increase tremendously), this may be the best option. This type of loan is also the easiest to qualify for.
20-year fixed-rate
You can shorten your mortgage by 10 years and usually get a lower interest rate with the 20-year mortgage. These aren't offered through as many banks and lenders, however, so you may have to shop around to get one. The advantage with the shorter term, besides paying your loan off sooner, is that you'll also have more equity in your home sooner than you will with a 30-year loan; however, your payments will be higher.
15-year fixed-rate
This loan term has the same benefits as the 20-year term (i.e., quicker pay-off, higher equity, lower interest rate), but you will also have a higher monthly payment.

adjustable rate mortgages

An adjustable-rate mortgage (ARM) has an interest rate that changes based on changing market rates and economic trends. They usually offer an initial interest rate that is two to three percentage points lower than fixed-rate mortgages, but they don't offer the stability or assurance of a known mortgage payment in the years to come. If you don't expect to be in your home for many years, however, an ARM may be just what you need.

How often your interest rate adjusts
is determined by the terms of the loan. You may choose a six-month ARM, a one-year ARM, a two-year ARM, or some other term. There is usually an initial period of time during which the rate won't change. This might be anywhere from six months to several years. For example, a 5/1-year ARM would mean the initial interest rate would stay the same for the first five years and then would adjust each year beginning with the sixth year. A 3/3-year ARM would mean the initial interest rate would stay the same for the first three years and then would adjust every three years beginning with the fourth year.
There will also be caps
or limits to how high your interest rate can go over the life of the loan and how much it may change with each adjustment. Interim or periodic caps dictate how much the interest rate may rise with each adjustment. For example, the terms of the loan may be that the rate can go up as high as one percentage point each year depending upon the market. Lifetime caps specify how high the rate can go over the life of the loan. For example, the terms of the loan might specify that the rate cannot go up by more than a total of six percentage points.
The interest rates for ARMs
can be tied to one-year U.S. Treasury bills, certificates of deposit (CDs), the London Inter-Bank Offer Rate (LIBOR), or other indexes. When mortgage lenders come up with their rates for ARMs, they look at the index and add a margin of two to four percentage points. Being "tied" to these index rates means that when those rates go up, your interest goes up with it. The flip side is that if they go down, your rate also goes down. Try this ARM calculator to see how your payments might change with an adjustable rate mortgage.

balloon mortgage

A balloon mortgage offers an initial interest rate that is lower than fixed-rate mortgages. It keeps this low fixed rate for five to seven years and then requires a "balloon" payment. The balloon payment is the final payment of the loan and pays off the entire balance. Monthly payments are low because the payments for those first five to seven years are amortized at a low interest rate over the total length of the loan. If you plan on either selling your home, paying it off or refinancing it before the balloon payment is due, then this type of mortgage is good deal.

federal housing administration loans

Government housing loans help lower the costs of mortgages so that more people can afford to own their own home. There are three government agencies that insure mortgages. The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development, the Veterans Administration (VA), and the Rural Housing Service (RHS), which is a branch of the U.S. Department of Agriculture. Only approved lenders can offer these loans, and there will be required standards that the property has to meet in order to qualify.

The FHA offers a mortgage-financing program that insures home loans. The FHA doesn't make the loans itself; rather, it serves as an insurance policy for lenders. Because the financial requirements for FHA loans are relaxed compared to traditional commercial loans, more people are able to afford to buy homes.

FHA insurance makes lenders more willing to work with someone who might not completely fit their usual loan qualification requirements. FHA requirements reduce the debt-to-income ratio from 28/36, which is the traditional loan requirement, to 29/41 for FHA loans. FHA loans also require a low down payment of 5 percent or less, and allow 100 percent of the money used for the down payment and closing costs to come from a family member. Traditional loans won't allow you to borrow the money used for those payments. There are maximum loan limits with FHA loans. These limits vary by state or region. Visit the FHA Web page to find the limit for your area.

veterans administration loans

VA loans are designed for qualified veterans and offer more relaxed standards for qualification than either FHA loans or traditional loans. As of 2002, loans can be for amounts up to $240,000 and require no down payment. Like FHA loans, these loans are not made by the Veterans Administration, but are simply guaranteed by the Administration.

rural housing service loans

If you live in a rural area or small town, you may qualify for a low-interest loan through the Rural Housing Service. RHS offers both guaranteed loans through approved lenders and direct loans that are government funded. These loans enable low-income families to get loans for homes.

reverse mortgages

Reverse mortgages pay you money as long as you live in your home. These loans are designed for people age 62 and older that own their homes and need an inflow of cash. The loan is against the equity and isn't paid off until you sell or move out of your home. Until then, you receive regular payments in the amount set up in the terms of the loan. Reverse mortgages are offered by state and local governments as well as banks and mortgage lenders. Shop carefully for these loans because interest rates and fees tend to be higher than in traditional mortgages. The AARP Web site offers additional information about reverse mortgages.

conventional vs. jumbo loans

A conventional loan is one that falls under the loan limit set by Fannie Mae or Freddie Mac. These limits change annually based on the single-family home price survey done by the Federal Housing Finance Board each October.

Loans that are above that limit are called jumbo loans. Because jumbo loans don't offer the same Fannie Mae and Freddie Mac backed safety to investors as conventional loans, their interest rates tend to be higher by about 0.25 percent to 0.50 percent. When the conventional loan limit changes, the FHA loan limit usually changes along with it.


Foreclosure Facts

the process

We will walk you through a simple step-by-step process that will provide everything necessary for us to resolve your defaulted loan situation. We provide you with all the information to help you build your "complete" loan resolution package that we will forward to your loan servicer for approval. If you fail to provide all necessary documents, you will not be approved. We will guide you and assist you in preparing the necessary supporting documents required by your lender. Should you attempt this on your own, expect to spend 15-25 hours to duplicate what we can do together in 30-45 minutes. We know what it takes to succeed. For each suggested component you choose to eliminate, your chances of keeping your home grow slimmer. Let Avoid Foreclosure provide this service for you and considerably increase your chance for keeping your home.

step by step process

  1. Figure out why you are in default and how much you may owe.
  2. Complete your financial analysis statement to see where your money goes and what's available.
  3. Send fax to order payoff and re-instatement figures from lender / attorney.
  4. Gather all your supporting documents - payroll, bank statements, hardship letter.  We will assist you in preparing your letter if you need help.
  5. Fax the necessary documents to Avoid Foreclosure to complete your resolution package.
  6. We will submit the package to your lender and negotiate on your behalf.
  7. We will call your lender daily to speed your workout approval.
  8. We will contact you to let you know the programs for which you will qualify.

tips for avoiding foreclosure

  • Don't ignore the problem
    The further behind you become, the harder it will be to reinstate your loan and the more likely you will lose your home.
  • Contact your lender as soon as you realize that you have a problem.
    Lenders do not want your house. They have options to help borrowers through difficult financial times.
  • Open and respond to mail from your lender.
    The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later, mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
  • Know your mortgage rights.
    Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and time frames in your state (since every state is different).
  • Prioritize your spending.
    After healthcare, keeping your home should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses - cable TV, memberships and entertainment that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
  • Contact a loss mitigation company
    If, for some unforeseen circumstance, you are unable to make you mortgage payment and are in jeopardy of losing your home, contact a reputable loss mitigation company to help you by negotiating with your lender to resolve your situation. Avoid Foreclosure is here to help.

items you will need to provide to your loss mitigation company

You will need to assemble the following information in a package very similar to what you provided when you obtained your loan. Once you have that information, your AvoidForeclosure.com loss mitigation specialist will organize it and assemble it in a package to submit to your lender.

For each borrower, you will need:

  • Your most recent mortgage statement & account number 
  • Your hardship statement explaining the circumstances regarding your defaulted loan.
  • Your completed Financial Worksheet
  • Your current pay stubs for last two months or a year-to-date profit/loss statement.
  • Your past two months' bank statements. Include all pages and all accounts.
  • The "real" dollar amount you have available "today" and 15 days from now to apply toward your mortgage delinquency.
  • Your credit card, debit card, or PayPal account that will allow you to order necessary supporting documents or services that will expedite the process.
  • Your email address where you can receive your approval package
  • A fax number where you can send and receive documents.
  • A photocopy of your Social Security card and photo ID, preferably your driver license.
  • Your after hours telephone number and an alternate number
  • If you absolutely can't save your home, we will provide other resolution options
  • We will give you tips of how to write a hardship letter, which your mortgage company will require, along with your other documents listed above.

Once you decide to contact Avoid Foreclosure, you should have your necessary documents together to help make the process go smoothly.

how the foreclosure process works

Avoid Foreclosure can help you:

  • Avoid foreclosure
  • Transfer overdue payments to the end of the loan
  • Lower your monthly payment
  • Keep your home

Foreclosure is the extinguishment of ownership and rights over a property in order to sell it for the purpose of paying a debt. For this to happen, the following must be true:

  • The debt must be collateralized by the property to be sold.
  • The debt must be in default. This means payments are not up to date.
  • The creditor must fulfill the legal requirements of the state where the property is located.

Contrary to common homeowner belief, the bank does not own the home. Unlike an auto or boat loan (where the bank's name is on the title), real estate is owned by the borrower. The property is collateral to the loan. "Foreclosure" is not "repossession". Foreclosure does not happen immediately after an owner is late on the mortgage payment. The foreclosing creditor must take specific legal steps. Each state has different laws governing the foreclosure process.

Foreclosure is the culminating event of a legal process. This is the foreclosure process. A property is not foreclosed until it is sold at auction in accordance with the state's foreclosure process. That "the lender is foreclosing" or that a "property is in foreclosure" really means that the lender has initiated and is proceeding through the legal process to foreclose a property.

Typically, as soon as there is a default, the lender initiates a collection process. This is known as the collections period. This is the best moment for a homeowner in default to reinstate and bring the payments up to date. The length of this collections period varies with each lender. However, generally speaking, if after three months the homeowner has not resolved the situation, the lender takes more drastic steps.

The foreclosure process starts if the creditor fails to collect. The foreclosure process always starts with a legal notice to the owner stating that if the loan is not paid or reinstated within a period of time, the property will be sold at auction in order to pay the debt. This period is known as pre-foreclosure. The length of the pre-foreclosure stage depends on the state's law. The owner has until the foreclosure date to resolve the default. Solutions for resolving the default range from reinstatement (bringing the loan current by catching up on past due payments), refinancing, paying off the debt in full, or the selling the property to another party in order to satisfy the debt. If none of the above happens by the auction date, the property will be sold to the highest bidder. Foreclosure is a short and specific event. The proceeds from the debt are used to pay the creditors. Anything left belongs to the owner of the foreclosed property.

Troublesome foreclosures happen when properties are over-mortgaged. In other words, the amount of money owed exceeds the value of the property. In these situations, the only way for the property owner to get out of debt (other than paying the debt) is for a short sale to happen prior to foreclosure.

Over-mortgaged properties are common. This usually occurs when second, third and sometimes fourth mortgages are taken out on a property. Liens are another reason. 100% financing is another source of this problem. 100% financed properties rapidly become over-mortgaged if there is a default, because if the owner stops paying, the debt on the property will usually increase faster than the property's appreciation. In addition, once the owner is in default, usually taxes, homeowner association fees and even utilities get neglected. Furthermore, and very commonly, maintenance is deferred and the property quickly starts becoming less valuable.

Sometimes accumulated debt can exceed 130% of the property value. In a pre-foreclosure situation, these secondary mortgages are at the mercy of the lender who is in first position. They worry about the chances of recovering their money if the first mortgage holder forecloses and the property sells at the auction for a low amount. The subordinate lenders are often willing to negotiate discount prior to foreclosure in order to mitigate their losses.

Knowing the foreclosure process is a critical component in pre-foreclosure investing. If you ability to repay your mortgage loan is compromised because you owe much more than your home is worth, sometimes a short sale is your best option.

what is a short sale?

A short sale is the sale of a property, with the authorization of the creditors, for less than what is owed on it. Short sales are done all the time. Whether it is the forgiveness of debt owed by a nation or an individual, it simply means that someone is willing to settle for less than what they originally anticipated. It's part of business. All lenders know that they will not win all the time.

Risk and loss of capital is an anticipated cost in the lending industry. Changing economic conditions, conflicts, and Mother Nature are among some of the many causes of unforeseen situations that turn good lending contracts into bad. In the context of foreclosure on secured assets, a short sale occurs when debtors agree to settle their liens for a known amount of money as opposed to taking a chance at auction. Auction prices are often unpredictable and usually greatly discounted.

Many lenders are willing to mitigate further risk of loss by making deals before auction. Bad debt is sold by lenders all the time. For instance, there is a huge market for unsecured credit card debt that is sold for pennies on the dollar to collection agencies. That's self-effectuated short sales. Lenders are more than happy to discuss resolution of aged debt. Their business is to lend capital, not dispose of foreclosed assets.

how can everyone win?

Bad feelings are often associated with respect to people making money over the misfortune of others. There are countless scams in the finance industry that prey on vulnerable people. These scammers rush in and get out quickly. They don't build long-term viable businesses that are good for a community. Contrary to what many think, there does not have to be a big loser in order to make money in the foreclosure business. It is a matter of choice. A valuable service can be provided that benefits both the property owner and lenders. People with predator mentality do not last long in this business.

Undoubtedly, the issues leading up to foreclosure are stressful and potentially volatile for all parties. Unforeseen underlying problems often exist. A professional in the foreclosure business, such as AvoidForeclosure.com, mediates a settlement that all parties can agree on. In a short sale, the lender has agreed to settle the matter without further claims, and the property owner clears their obligations without the lingering negative effects of a foreclosure and subsequent garnishment of additional monies that auction did not bring. Your professional loss mitigation company will handle all the negotiating with your mortgage company for you and will help greatly to eliminate your stress.

Call AvoidForeclosure.com today to help you keep your home!

available programs

The federal government and the mortgage industry established loss mitigation programs in order to help prevent home foreclosures. There are several programs available, and each lender has its own policies regarding the use of these programs. In addition, each program has its own complexities and rules that must be followed.

Because of our extensive experience, as well as our close working relationships with mortgage lenders, we are able to help you successfully navigate through those complexities and rules, which may otherwise be overwhelming for you as you work to save your home.

First, we perform a thorough assessment of your personal finances and analyze your lender's loss mitigation policies. Then, our professional loss mitigators will negotiate with your lender to get you the best possible solution to your home foreclosure problem. We can help you save your home through any one of these loss mitigation options:

  1. REPAYMENT PLAN

    A great many people have short-term financial problems and may have no choice but to miss a payment or two on their mortgage. Once that short-term problem is over, they can go back to making their mortgage payment, but they can't come up with enough money to also pay the missed payments.

    This is the most common mortgage problem, and a repayment plan is the most common solution. Your lender and you, with our help, set up a repayment plan whereby, in addition to your normal mortgage payment, you also pay a bit of what you owe on the missing payments, until you are caught up.

  2. FOREBEARANCE PLAN

    If you can show your lender that you will be able to pay your mortgage loan after a certain length of time, you may qualify for a special forbearance. Your lender will allow you to make reduced payments for a certain amount of time, or indeed, no payments at all. However, during this time period, interest on the loan will continue to accrue.

    The special forbearance is often combined with a repayment plan.

  3. LOAN MODIFICATION

    A Loan Modification is "a permanent change in one or more of the terms of a mortgagor's loan, which allows the loan to be reinstated and results in a payment the mortgagor can afford. In other words, your interest rate can be lowered, your remaining balance re-amortized and/or the current term of your loan extended in order to reduce your monthly payment.

    There are costs and fees associated with a modification that you will be responsible for, and for which you will have to make an immediate payment.

    In order to qualify for a Loan Modification, all property taxes must be current, or you must be participating in an approved payment plan with your taxing authority. If you have any additional liens or mortgages with other lenders - they must agree to be subordinate to the first mortgage.

  4. VA LOAN MODIFICATION / REFUNDING

    The VA Loan is a program set up by the Veterans Administration to help active duty and retired military personnel purchase homes. With a loan through the VA, the home is financed completely, so that you don't have to pay mortgage insurance, and they also set limits on the types of fees that can be charged by your lender. If you're having temporary problems, it is possible to do a Loan Modification on a VA loan.

    If your lender will not do a loan modification, but intends to foreclose, the VA also has an option, called "re-funding" - where they will buy your loan from your original lender and re-amortize the loan so you can afford to make the new payments. This is; however, entirely up to their discretion.

  5. PARTIAL CLAIM

    If you do not qualify for a repayment plan or loan modification, you may still be able to obtain a partial claim - if your mortgage is through the Federal Housing Authority (FHA).

    With a partial claim, you are taking out an interest-free second mortgage through HUD to assist you in paying the first mortgage.

    As the HUD website puts it: Under the Partial Claim option, a mortgagee will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI [principle, interest, taxes and insurance]). The mortgagor will execute a promissory note and subordinate mortgage payable to HUD.

    FHA mortgage holders may qualify for a partial claim if their loan payments are more than 4 months, but no more than 12 months overdue, and they have the proven financial stability to begin meeting their payments.

  6. DEED IN LIEU OF FORECLOSURE

    If you have had your home listed with a real estate agent for at least 30 days, with no success in selling it and if it is in sellable condition, and if there are no claims or liens against it - other than your mortgage, of course, you may be eligible for a "deed in lieu of foreclosure."

    What this means is that you transfer the deed of your house to your lender, so they do not have to foreclose on the property. They obtain ownership of the property immediately, and the remainder of your debt is forgiven. Note that this program does not save your house.

  7. SHORT PAYOFF

    A "short payoff," also known as a "short sale," or a "pre-foreclosure sale," is really the option of last resort, and requirements to have this occur are very stringent. Loss mitigation companies are not authorized to approve such loans - only the lender can do it.

    It is defined as "A sale in which a lender allows the property securing a mortgage or deed of trust loan to be sold for less than the existing loan balance, due to factors such as the borrower's financial circumstances, the property's physical condition and local real estate market conditions." The money thus gained from the sale belongs to the lender. The homeowner cannot benefit financially from a short sale.

    To qualify for a "short sale," you must have suffered a long term financial hardship - for example, you or an immediate family member have suffered a catastrophic illness, your employer has transferred you out of the area and you're unable to sell or rent the property, you've suffered a disabling injury that precludes you from ever working again, and so on. There are several reasons that lenders will allow a "short sale."

    Complete the online form or call us today at 1-888-AVOID-IT to find out which program will work best for you.

How To Stop Foreclosure

  • Don't ignore the problem
    The further behind you become, the harder it will be to reinstate your loan and the more likely you will lose your home.
  • Contact your lender as soon as you realize that you have a problem.
    Lenders do not want your house. They have options to help borrowers through difficult financial times.
  • Open and respond to mail from your lender.
    The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later, mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
  • Know your mortgage rights.
    Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and time frames in your state (since every state is different).
  • Prioritize your spending.
    After healthcare, keeping your home should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses - cable TV, memberships and entertainment that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
  • Contact a loss mitigation company
    If, for some unforeseen circumstance, you are unable to make you mortgage payment and are in jeopardy of losing your home, contact a reputable loss mitigation company to help you by negotiating with your lender to resolve your situation. Avoid Forecloure is here to help!