How Can I Get Foreclosure Refinancing?
In general terms there are two forms of foreclosure refinancing, money for those facing foreclosure and financing for those who have purchased foreclosed property and want a new loan with better terms.
Facing Foreclosure
In the first case we have an owner who may lose his or her home, perhaps someone with a toxic loan or maybe an owner who has lost a job, been through a divorce, had an accident or faced a medical crisis. Whatever the situation, you can pretty much bet that payments for various bills have been late or unpaid and as a result credit is shot.
In such circumstances one reaction is to use retirement funds such as Keoghs to stay afloat. If retirement money can get you through a short-term crisis, fine. However, if pension reductions merely postpone the inevitable loss of a home then such withdrawals should be avoided. Here’s why: If you have a bankruptcy pension funds are generally protected against creditor claims.
If foreclosure looms owners may seek to refinance their homes. However, with weak credit no legitimate lender will offer financing. The alternative is to seek help from friends and family, perhaps a religious congregation.
Hard Money Lenders
In addition, there IS money available for those facing foreclosure. It comes from hard money lenders who will make a deal that looks like this: Financing equal to 50 to 70 percent of the property, four or five points plus an interest rate 5 to 10 percent above prevailing rates.
For example, if you have a home with a fair market value of $300,000 a hard money lender will advance $150,000 to $210,000. For a $210,000 loan with five points the loan will be discounted by $10,500 at closing (a “point” equals 1 percent of the mortgage amount, so $210,000 x 5% = $10,500). If interest levels are at 5 percent you will pay, perhaps, 12.5% or $2,241.24 per month for principal and interest.
Does such financing make sense? Will it pay off the current loan which is in default? Can you afford $2,240 per month plus taxes and insurance?
Hard money lending certainly makes sense for the hard money lender. They’re getting cash up-front from the points they charge and if the loan cannot be repaid they have plenty of equity to re-sell the home at a profit after they foreclose.
The Sane Alternative
Hard money mortgages make sense for few owners. The alternative is to seek a loan modification through the federal government’s Making Home Affordable program. Entry into such a program will at least postpone a foreclosure for several months if you are not successful meeting program terms. However, the program should result in substantially lower monthly payments and can lead to permanent and affordable refinancing.
In addition, contact community housing organizations, state governments and your state attorney general to see if other modification programs are available.
Foreclosure Refinancing
The other form of foreclosure refinancing is associated with those who have bought a foreclosed property and now wish to refinance, perhaps because the property has been improved or to get better rates and terms.
Good news: What you have is a piece of real estate. If your credit is good then refinancing a foreclosed home is no different than refinancing any other property. Lenders are interested in your cash, credit and equity, not the cash, credit and equity of a former owner.
© Copyright 