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Warning Signs you may be in Danger of Foreclosure
No one wants to think they may lose their home, but you may be closer to the foreclosure cliff than you think. Below are five warning signs that foreclosure may be in your future. If you and your family's finances display some of the warnings below, take heart. Being on the verge of foreclosure is not the same thing as going through foreclosure: the sooner you find a solution, the more likely you can avoid losing your home.
Warning #1: Your Mortgage Payment has Drastically Increased.
If you have an adjustable rate mortgage, and your payment amount has drastically increased at some point in the recent past, then you need to be diligent in guarding against foreclosure. The same is true if your mortgage offered you an introductory or teaser rate, but your payment has recently increased. Increases in mortgage payments can really stress the family budget, especially if you did not plan for the increase when you took out your mortgage. If you are now struggling to make your mortgage payment every month because of the increase, contact your lender as soon as possible to work out a possible refinance or mortgage modification.
Warning #2: You Pay Your Bills Later and Later
Everyone occasionally pays a bill late, but if you have noticed that lately you pay most if not all of your bills later and later, trouble is on the horizon. Especially if you normally paid your bills early or on time, this new trend of late payments may be a sign that your income is no longer sufficient to meet your expenses. The late payments increase the amount owed after late fees are tacked on, which will add further stress to your budget. If you are struggling to pay your bills every month, now is the perfect time to evaluate your budget. See where you can trim down costs or increase your income.
Warning #3: You Pay Your Bills with Credit rather than Cash
If you normally paid your bills with cash, but now find yourself putting purchases on your credit card, you need to evaluate your financial health. Especially if you are using credit to pay for everyday expenses like groceries or gas, it is a sign you are no longer making enough money to pay your monthly bills. Using credit to pay for these expenses creates a no-win situation. You cannot afford your bills, but now you will be slapped with interest and possible over the limit or late fees. Eventually, this situation will morph into a serious problem. Every month that you can't afford your monthly budget is one month closer to foreclosure. Proceed with caution, and alter your budget immediately so that your income covers your expenses. This may mean cutting out significant household expenses, such as trading in your expensive car for a cheaper alternative, but cutting out extraneous expenses will allow you to keep your house.
Warning #4: You have Experienced a Decrease in Income
Most people who are laid off understand that their house may be in danger of foreclosure. However, if you have experienced any kind of income decrease, whether it is less money for child support or your employer has simply cut your hours, foreclosure could be closer than you think. Even if you have savings to rely on, sooner or later the funds will run out. Begin immediately attempting to either replace the income or trim expenses. Don't rely on the savings you have set aside. Instead prepare yourself for the possibility that the overtime at work is gone permanently. If the income is truly gone, then you'll be prepared to keep your home. If the income returns, then you are in for a pleasant surprise.
Warning #5: Your Savings is Minimal or Non-Existent
Perhaps the best sign of your financial health is the amount of your savings account. If you are not currently saving any of your income, then trouble might be just around the corner. Without savings, a single emergency could be all that is between you and potential foreclosure. A healthy financial portfolio has at least an emergency fund with six months worth of living expenses. Hopefully, you have more than that saved for long term. However, even if you have savings, if you are no longer able to put back a little money every month, then your income is probably no longer sufficient to cover your expenses.
You may not think your late credit card payment or lack of savings affects your mortgage. After all, you are paying your mortgage on time, but remember, bills tend to snowball, so that if you are paying your electric bill late today, chances are you will be paying multiple bills late in a few months. Soon, even your mortgage may become impossible to pay. The best solution for avoiding foreclosure is to recognize the danger signs and correct the problem before the first late mortgage payment.
Published on BankingQuestions.com 11/07/08
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