Nobody wants to experience the foreclosure process at any point in their lives. Unfortunately, sometimes there are circumstances outside of our control that may put us in that situation. When it comes down to it, there is only one thing that can put your home into foreclosure. That is repeated missed payments on your mortgage. There are, however, many factors that may put you in that position. Let’s have a look at some of the most common causes of foreclosure so that you can avoid these situations as much as possible.
Unemployment
The job market has been a wild ride in the past few decades, and gone are the days of job security for a lot of people. Your company may go through a merger or buy-out, maybe the company has to cut back on costs, or maybe it’s closing down altogether. Layoffs can come seemingly out of nowhere, and it’s not always easy to get a new job right away. There are other reasons outside of layoffs that you might become unemployed as well – from health issues that arise to unresolvable differences with your boss.
Whether you left voluntarily or involuntarily, in order to prevent foreclosure due to unemployment, you should always make sure to have some money put away for emergency situations like this. That way, you have a few months to find a new job and get back on your feet without losing your home.
Adjustable-Rate Loans
When you begin the home buying process, it is extremely important that you understand the terms of your loan. With adjustable-rate mortgages, the interest rate is based on a national index and changes at regular intervals. Many buyers are attracted to the low-interest rates starting off, but quickly become overwhelmed with payments as the interest rate jumps up. This was the cause of many defaulted mortgages during the Great Recession.
Adjustable-rate loans aren’t always a bad idea, but it is necessary that you read the small print. Make sure that you have a solid understanding of the terms of your loan and the implications that they could have on your future payments so that you’re not surprised when your mortgage payments increase dramatically.
Other Debts
If you have a lot of debt other than your house, you might find yourself in the position of having to choose between paying your mortgage or other bills. This is particularly common with credit card debt. Credit cards tend to have high-interest rates, so it’s best practice to pay off your credit card bills in full each month. Once you’re behind, interest rates can make your total debt owed grow dramatically, and it’s hard to get back ahead. It could come down to choosing between foreclosure or bankruptcy.
Other bills can also affect your ability to pay your mortgage. Student loans, utilities, medical debt, or large unexpected expenses could put you under financial stress. This is another reason it’s a good idea to have some money saved away for emergency situations so you don’t fall behind on your mortgage payments.
Natural Disasters
Natural disasters affecting your ability to pay your mortgage seem especially unfair since we have no control over mother nature. Even if your house is completely destroyed in a natural disaster, you must keep paying your mortgage payments. This is why insurance is so important. You need to be prepared before the natural disaster occurs by making sure your insurance covers things such as floods, earthquakes, and fires.
If you do face a natural disaster, contact your insurance as soon as possible because it’s likely all of your neighbors will be doing the same and insurance claims can be quite delayed. If your home was in a designated disaster zone, you might have other options available to you like a moratorium, where foreclosures will be suspended for a certain amount of time. These don’t get rid of your mortgage payments but rather extend them for a time, so it’s still crucial to have insurance and contact a HUD-approved housing counselor for guidance into any government programs available to help you.
Medical Expenses or Illness
Medical bills can build up quickly, especially for those facing severe health issues or those who don’t have insurance. Not only that but you may be forced to miss work or even lose your job because of the medical issues you’re having. This is another reason it is important to have insurance so that your medical bills don’t add up and affect your ability to pay your mortgage. Having a safety net savings account will help you pay your mortgage until you’re able to return to work or make other arrangements and spare you the mess of a foreclosure.
A Death in the Family
Losing a loved one is already an extremely rough situation, but if that person was responsible for bringing in a majority of the income, it can leave the surviving family member in a hard spot trying to pay off the monthly mortgage. While a life insurance policy might alleviate some of the stresses and help pay the mortgage for a while, the surviving family member will either need to find an income that can cover mortgage payments long-term or consider selling the house.
Loss of Home Value
The value of homes fluctuates and it’s possible that you end up owing more money on your home than it is actually worth. When this happens, the home is considered underwater. Some homeowners will make the decision to stop paying off their loans and walk away, as they don’t have any incentives to keep up with their payments.
Do Your Best to be Prepared
There are quite a few ways you might find yourself facing foreclosure, some of which are completely out of your hands. But the one thing you do have control over is how prepared you are to handle these situations if they do arise. By always having three to six months’ worth of living expenses tucked away in case of emergencies, you allow yourself time to figure things out with the added stress of an unpaid mortgage payment looming over your head.
Other things like being properly insured and reading the fine print on your loans will help you prevent yourself from ending up in desperate situations. If you do find yourself unable to pay your mortgage payments, it’s best to contact your lender as soon as possible and look into what bank or government programs are available to you to get back on your feet.
