We’ve all heard the saying "Ignorance is bliss"; but purchasing a house or condominium with this attitude may be until the collector starts sending a homeowner those inevitable letters and they receive phone call after persistent phone call from their loan servicer…
Once a homeowner in foreclosure begins working with his lender, he or she will be asked for several financial documents in order to assess the homeowner's current situation, what was the cause of the default and what type of workout can be accomplished. The reason a homeowner needs to provide this information is in order to determine what their available options are based on their current financial situation.
A successful foreclosure workout that enables the homeowner to keep the property is dependent on the lender being able to determine that the homeowner suffered a financial hardship and through the financial paperwork provided will have the financial capability to be able to keep the loan current. Other options that may be available for a successful workout involve a pre-foreclosure sale or Deed In Lieu of Foreclosure which will be dependent on the lender being able to determine there was a financial hardship, but due to a homeowner's current circumstances, foreclosure is inevitable.
Most lenders will require the following documents as the minimum for considering a loan workout, and many lenders will not consider a workout until the loan has been delinquent for at least 90 days. This is why it is important for the homeowner to contact his or her lender to find out the particular guidelines that their lender uses.
Hardship Letter
This letter describes the hardship that caused the loan to go into default and describes your preferred solution to bring the loan current. The hardship should be involuntary, such as divorce, job layoff or medical reasons. This letter will also include your proposal for a workout and the reason you are confident the workout plan will succeed.
Paystubs
One or two current paystubs from each person occupying the property who is contributing to the payment of household expenses. The lender will use this to determine the feasibility of any repayment plan, or whether to determine foreclosure is inevitable.
Tax Returns
If the homeowner is self-employed, these types of borrowers will need to provide the last two years tax returns along with a current profit and loss statement. Many self employed borrowers don't receive paystubs, the lender will use the tax returns to determine income levels.
Financial Statement
The lender will ask for a financial statement outlining all of your income, assets and liabilities. This statement provides a "snapshot" of your financial situation allowing the lender to determine how the economic hardship can be overcome. In addition, many lenders also ask for a monthly expenses worksheet this includes other debt obligations such as credit card payments, utilities, food, etc. Make sure that as a homeowner you make a diligent effort to give an accurate estimate of your monthly expenses. It would also be advisable to begin to cut some of your discretionary expenses in your monthly budget.
The more organized the homeowner is in this process, the better the homeowner will be able to handle the myriad of questions that he or she will have to undergo with the lender. One key thing to remember if the homeowner is attempting to complete a workout without outside assistance is to submit ALL of their paperwork together as a package. Be sure to keep copies of everything and document when they were sent.
In addition, a homeowner should keep a notebook to record or summarize any and all conversations or documents sent to anyone that he or she discusses or communicates with regarding the loan. This information can later be helpful in the event that there are any miscommunications and/or a homeowner may need to hire a lawyer.
The homeowner's lender needs all of the above information to be able to determine which type of workout may be appropriate. Once that is determined, the lender will communicate with the homeowner what their options may be and what will be the next steps a homeowner will need to address or act on. While this financial assessment process may be grueling to the homeowner, a realistic assessment of the situation may enable the homeowner to find a solution he or she might not have believed was previously available.
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