Although the inevitable in life can happen, avoiding foreclosure on a condo, home or town home starts with prevention. Find out how to prevent foreclosure on your dwelling by taking these necessary steps before or during the life of your loan.
Before thinking of your home, think of yourself. Purchase disability insurance (short-term and long-term) to be prepared for any circumstances where you may lose your income due to any injury or illness. While the amount paid is a percentage of your current salary, it will help cover the mortgage due on your property and help avoid late payments and/or foreclosure proceedings.
To avoid living from pay check to pay check, buy your realistic rather than dream home. Go with a fixed-rate home loan no more than 30% of your take-home pay. Never handle a payment for more than what you feel comfortable paying. Remember life situations can change at any time: divorces, deaths, unexpected illnesses, job losses; so don’t take on a payment right away thinking “it will be tough, but we can handle it,” as the unexpected is always waiting to happen, be it good or bad.
Life isn’t perfect and everyone should always plan for the future; homeowner or not. Have at least an 8 month emergency fund saved before purchasing any condo, home or town home. This amount is to remain stocked at all times, and whenever possible, added to. Emergency funds should be made of readily-available savings. Borrowing from a 401k or other assets not immediately available do not count.
If it looks like the budget runs short every month, even with frugal living, it may be time to consider other options. Take on a tenant and rent out room for extra money if necessary to supplement payment. While some people may be opposed to this idea; which is better: living with a tenant or losing your home and good credit rating? Make sure the tenant has a verifiable source of income, a clear criminal record and is someone who can comply with your house rules.
Prioritize your bills and always make sure your house payment is on time, every time. This may help you to try to get a lower payment (based on current interest rates). Good credit may help you refinance home, depending on its current market value versus amount owed.
Most importantly, prepare for the unexpected. Have homeowner’s insurance, flood insurance, termite bonds and other types of insurances. If something happens to home, extra money will be needed for additional living spaces and the home still needs to be payed on. If living in a flood-prone area, one that is in “tornado alley” or one frequent to hurricanes, prepare ahead of time by having extra money in an emergency fund in case temporary housing is needed.