Perhaps the first thing new homebuyers should know when they sign a mortgage is that their annual expenses, including taxes and insurance, should not exceed 36% of their household income, according to several lending institutions.
Lester Wilkins, a loan officer at Flagstar Bank in Fort Gratiot, said in the current housing market people should consider a total housing expense closer to 25%, and people should have cash reserves of about two or three month's waIf borrowers find themselves suddenly struggling to make their mortgage payments, he said, they should contact their lender's loss mitigation department. "Banks do not want to default on a mortgage as much if not more than the borrowers. It is estimated a bank starts off with a 40% loss in the individual investment as soon as they reclaim the property," he said. "Banks are often willing to modify a borrower's loan ... this is becoming almost commonplace in light of the foreclosure epidemic."
Over the next two years, the Department of Housing and Urban Development estimates 2.3 million adjustable-rate mortgages will reset, and nearly a quarter of these homeowners will be at risk of foreclosure as interest rates rise.
Last year, the department implemented the FHASecure plan that allows borrowers with a history of timely mortgage payments to refinance their sub-prime loans.
The department also offers these tips for avoiding foreclosure, beginning with responding to lender's letters:
Do not ignore communications from your lender: Be prepared to provide them with financial information, such as your monthly income and expenses.
Stay in your home for now: You may not qualify for assistance if you abandon your property.
Beware of scams: Do not sign anything you don't understand, and remember that signing over the deed to someone else (who promises to repair bad credit or manage mounting debts) does not necessarily relieve you of your loan obligation.
Contact a HUD-approved housing counseling agency at (800) 569-4287: These agencies frequently have information on services and programs offered by government agencies as well as private and community organizations that can help.
John Niebieszczanski, a field operations chief with HUD and an Algonac resident, said the best defense against loan defaults is a good offense.
"It's important that people are proactive," he said. "The thing is getting people to make that step and not the day before the house goes into foreclosure."ges for security.
