With foreclosures occurring in record numbers across America over the past few years, many borrowers wonder what they can do to avoid ending up in a similar situation. The recent housing crisis can be in part attributed to lender mistakes and in part due to the mistakes of borrowers, these include the following:
Foreclosure Mistakes by Borrowers
Common borrower mistakes that can lead them to foreclosure include:
- Not Checking the Interest Rate – Some buyers do not pay attention to the interest rate that they’ve signed up for. They may calculate their affordable mortgage amount based on an online approval amount or calculator. If they’re a higher risk borrower, they may end up with a higher interest rate by the time they actually have a mortgage commitment.
- Not Understanding What an Adjustable Interest Rate Means – Buyers often get caught up in the idea of a adjustable interest rate when interest rates are low and don’t think about the fact that rates could go up again. They can also end up in an adjustable loan with an inappropriate time frame for their needs. When this occurs, home owners may no longer be able to afford their mortgage.
- Buyers Have To Borrow Their Down Payment – Individuals that require a down payment, but don’t have the cash may choose to borrow the funds. This means that they will struggle to pay back a loan as they pay a mortgage they can only just afford.
Foreclosure Mistakes by Lenders
There have been times when lending criteria has been too flexible, especially when sub-prime loans are concerned. Lenders may not pay appropriate attention to debt ratios, the source of cash that home buyers use for a deposit, or they may not thoroughly explore a buyer’s credit history. As the wave of foreclosures has hit in the past couple of years, many lenders have also been overwhelmed with the amount of work and paperwork associated with the foreclosure process, this has led to lender mistakes which often create a lose / lose scenario for lenders and borrowers alike.
Buyers cannot control the actions of their lenders, but they can inform themselves and make smart decisions to insure that they protect their investments. If you have questions about how to avoid foreclosure or which type of loan is the best for your scenario, we can help inform you so that you make the right decision armed with the knowledge you need.