Refinancing a house to stop foreclosure is possible when facing a financial hardship, but it is certainly not a very easy option. Homeowners who have recovered from their hardship and can prove enough income and job stability may want to try applying for a foreclosure loan through a few different places. However, it is important to have backup plans in case the loan does not go through.
There are very few traditional lenders who will do foreclosure refinancing loans, though, so homeowners need to search for alternative sources of funding. These usually include banks that specialize in equity-based lending and hard money lenders that are willing to consider foreclosure properties based on equity. Neither of these types of lenders use credit scores as a qualifying factor in their decisions to provide loans, which makes them very useful for the average foreclosure victim, whose credit has taken quite a hit because of the defaulted mortgage.
Banks that specialize in this type of refinancing situation often require there to be high levels of equity in a property. They may not loan more than 65% of the value of the house, which puts many homeowners out of the running for a loan altogether. With declining property values, it is becoming even more difficult to qualify for a foreclosure bailout loan from a traditional lender. This can be a useful solution if the property qualifies, however, as it replaces the current mortgage with a brand new one and gives the owners a fresh start on making monthly payments.
Hard money lenders are almost no different in terms of their requirements. They may go up to 70-75% of the value of the house, which is slightly higher than banks, but this still makes foreclosure loans somewhat uncommon. These lenders often charge a much higher amount on the front end of the loan, as well, taking 4-5 points right when the loan closes. This makes it a more expensive solution over the long term, as homeowners need to pay back the interest on these extra charges. Hard money lenders also typically operate in only a couple to a handful of states, so it is up to homeowners to look up many of these companies on their own.
Declining property values and the trend in the housing market to leverage a house to near 100% of its appraised value have made foreclosure loans more difficult to qualify for. Although lenders may be willing to do short sales to help a client sell a house, it seems they are less likely to go for a short payoff, which would allow homeowners to refinance for a lower amount. However, short payoffs may become more acceptable as more properties fall into foreclosure and property values decline further.
Many of the circumstances in the real estate market are currently discouraging foreclosure loans from being pursued by most lenders. This is one reason that homeowners should carefully evaluate any foreclosure lender that they consider working with and critically analyze their chances of being approved for such a loan. It does not make sense to keep applying for bailout loan after bailout loan if no progress is being made and precious time to stop foreclosure is being wasted.
on May 25, 2008, 3:55 pm