Avoiding Foreclosure

Choose your Mortgage Wisely

For many families the purchase of a home is the "American Dream". This dream can quickly become a nightmare if a family becomes stricken with difficult financial times and is nearing foreclosure. Foreclosure is defined as the legal process in which property that has been deemed as secured debt is in default and is required to be sold.

For the past couple of years it has been unfortunate that foreclosures have increased dramatically. This is largely attributed to families purchasing homes that are far too expensive; living beyond their means. In most cases, those families that chose to purchase a very expensive home; chose a risky type of mortgage. In order to avoid foreclosure and select your mortgage wisely, here are some tips:

Research the Different Types of Mortgages

In today's economy there are a variety of mortgage products available for potential homeowners. This is evident by the number of different products consumers see when they walk into a bank lobby. Banks have morphed the mortgage industry; offering several mortgage products to different homebuyers. There are fixed rate mortgages, adjustable rate mortgages, interest only mortgages, etc. As a home buyer it is your responsibility to select the right mortgage; failing to do so can increase the risk of foreclosure.

Consider not Only the Mortgage, but Associated Costs

Many homeowners are not aware of how expensive it truly is to purchase a home. You not only have mortgage costs, but closing costs, application fee costs, points, insurance and additional incurred expenses. There are advertisements that at first glance seem very appealing; for example, a $300k mortgage for $1,000. However, once these additional costs are accounted for, the amount realized is often higher than first impressions would have led one to expect. You must ensure that you are aware of all of these costs in order to make a sound decision and determine if you can truly afford your mortgage. All of this should be considered prior to signing on the dotted line; if not, you increase your chances of foreclosure in the future.

Be Conservative when Choosing your Mortgage

This is one of those times when being conservative is of the utmost importance. It is important to remember that both you and your family's lifestyle are dependent upon how well you are able to pay your mortgage from month to month. A typical mortgage will last for 15 to 30 years; you must consider both your present and future financial situation.

The most conservative mortgage you can choose is the Fixed Rate Mortgage. The name says it all; Fixed Rate. The interest rate will remain the same for the duration of the loan; this allows you to know the mortgage payment for the next 29 years. This provides consumers with the peace of mind that in 25 years they will still have the ability to pay the mortgage. Again, in order to avoid foreclosure, this is one of the most important things that you can do as a consumer.