Q & A with Dottie Herman

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Q1 - My husband and I have been in our house for 1 year. We are currently going through a little financial trouble as we had some unexpected expenses. If we miss one or two months on our mortgage is that grounds for foreclosure? Is there anything we can do so we remain in good standing with our lender?

A - Check with an attorney, but Lenders can usually start a foreclosure proceeding once you are 90 days late, but some will wait longer.  If you miss a payment you will most likely get a call from the bank asking why you missed the payment, and if you will continue to have a problem paying each month.  Know that once you are late your credit is negatively impacted and is reported to credit agencies. The proper approach for you is to be honest and explain your situation to the bank.  Banks do not want to foreclosure on your home so the first step is called "Loss Mitigation", meaning how they can work out a solution that will keep you in the house and get caught up with your payments. First they may give you some "Forbearance" agreement, meaning they will provide temporary relief in some form. After that they may agree to modify your loan to make it affordable for you by lowering the debt or forgiving some part of the obligation.  Keep in mind that no bank will generally offer this unless you can prove that you have a true hardship, meaning that recent events like loss of employment or health issues.  You may want to discuss with the lender if you will sell your home to reduce your monthly expenses?  Your lender may make this part of any agreement to help you, and may even allow you to sell if your mortgage loan balance is higher than the value of your home.  This is known as a short sale, and in today's environment many banks will relieve you of any obligation for the remaining balance after the sale.  So, if you will not be able to meet your obligation, it is best to communicate with your lender and hopefully get back on your feet as soon as possible.  Good Luck!

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Q2 - What is mortgage loan modification and how does it help a homeowner?

A - A loan modification is when a lender amends the terms of a homeowner's existing mortgage.  Modifications have been used in the past few years as a way for lenders to assist homeowners and avoid having foreclosures.  In order to receive a modification a homeowner must be able to show true hardship. Modification terms are used to lower the monthly expenses to the homeowner. This can be done by lowering the interest rate or lowering the existing loan balance, either permanently or temporally.

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Q3 - I am applying for a mortgage, and a friend told me that a fixed rate mortgage is always the best way to go. Is that true in all situations? How do I know what is best for me? 

A - In a low interest rate environment, that is often the correct answer, but there are a few things to consider when deciding whether a fixed rate or an adjustable rate is best.  Since adjustable rate loans normally carry a much lower interest rate than the fixed rate loan the first question is how long do you intend to keep the loan?  Many buyers who are transient and only stay in a home for a few years will often use an adjustable rate loan for this reason. The other reason is for loan qualifying purposes in that, most adjustable rate mortgages require less income to qualify, so if the buyer is expecting to have increasing income then this loan may help them buy earlier or get the home that they really want. Consider this: if you had an adjustable rate mortgage in 2005 your rate would have gone down and been lower than the fixed rates most of the time right up to the end of 2010.  The fixed rate is by far more popular and the best choice if you are planning to be in your home for more than 5 years.  This is especially true now that we are in a very, very low interest rate environment and the rates have much more room to go up than down!

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Q4 - Who are reverse mortgages designed for? What are some of the pros and cons?  

A - Reverse mortgages mostly have pros for those that can benefit from having one, however, you must be 62 years of age or older to qualify for a reverse mortgage. First, the proceeds from a reverse mortgage are available as a lump sum payment or monthly payments. So instead of making monthly mortgage payments, your house pays you an income. The monthly payments continue as long as you live in your home. You must own your home and must have equity in your home to qualify but there are no credit qualifications for the loan. The cons would be related to estate planning and use of the equity in your home, something that is different for everyone so you should consult your tax advisor before pursuing a Reverse mortgage. Reverse mortgages have become competitively priced, but are still considered "expensive".

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

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