Refinance Option to Avoid Foreclosure
Apply for refinancing as early as possible
What kind of refinancing works best for you?
You have two major options for refinancing:
1. Equity line of credit
2. Conventional refinancing
You need to apply for any of these two refinancing before you receive the Notice of Default (NOD). Otherwise, you have only one option left: that is, hard money from a sub-prime lender, costing you much more that these two.
Your bank or lender allows you to use about 80 percent of your equity under these two loan options. Try to increase this limit by offering to buy Private Mortgage Insurance (PMI).
Some banks extend equity lines of credit with maturities similar to conventional loans. In addition to fixed interest rate refinancing, you may also consider adjustable rate refinancing that allows you to make low monthly payments for the first few years until you strengthen your financial situation.
Depending on the level of your equity in your home, you may consider second and even third mortgage.
Home equity line of credit option
Primarily, there are two types of home equity line of credit (HELOC): revolving type that you do not pay the entire amount of loan at once. You may pay only interest. This type of home equity line of credit typically carries an adjustable rate of interest.
The other type of HELOC is one-time loan for a longer period of time and at a fixed rate of interest. This interest rate is normally higher than the rate on revolving type of RELOC.
Sources of financing for refinance
You are not limited to banks or mortgage companies to obtain refinance. Check credit unions that provide financing to home owners who are not their members as well. Mortgage companies, some life insurance companies, and even some stock brokerage companies may be interested in investing in real estate.
Hard loans for saving you home
The last option that you may consider is hard loans with lower loan-to-value ratio and higher interest rate. Do not consider this option until you exhaust all of your chances in other type of loans.
Exercise caution in borrowing hard money if you definitely need it. Here are some tips:
- Be ready for tough negotiation! Don't get surprised to hear that there are problems at the very last minute and that you need to give some concessions, perhaps a higher rate of interest, or additional fees.
- Any statement indicating that your loan is subject to the approval of a higher authority, the final lender. This may mean that final lender may ask for additional sacrifices.
- Read your loan document very carefully to find out some clauses that allow the lender to raise interest rates, impose penalties, prepayment penalty, to name few. Have a real estate attorney to go over your documents.
Need help? Review your options to get foreclosure help by professionals (lawyers specializing in foreclosure, foreclosure consultants registered to assist homeowners subject to foreclosure, debt counselors, and real estate agents in California), California state agencies, foreclosure help by county agencies in California, consumer advocacy groups, and nonprofit organizations in California.