Debt Basics

Debt Basics
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The Basics of Home Loans

What is a Home Loan?

Using your home for large amounts of credit is an easy and popular way to obtain extra money. Equity is the difference between your home's appraised value and your outstanding mortgage balance. If you have equity in your home, borrowing against it can help you take control of your finances and come out on top.

What do I need to consider if I want to take out a loan against my home?

If you are thinking about borrowing a loan against your home, you may want to start gathering up the resources to determine whether you financially ready. Your income information, account balances, account numbers, purchase price and market value of are important factors in determining your readiness.

What should I do if I am falling behind on my payments?

If you find that you are falling behind on your mortgage payments, you should contact your lender right away. As tempting as it may be, do not ignore letters and/or phone calls, but instead take the initiative in establishing communication. Communicating increases the chances of keeping your home.

Unlike unsecured debt, secured debt can carry high repercussions. Repaying your mortgage should be your main priority. If you try to avoid the situation it will become more difficult to repair. Stay engaged in your financial situations. When securing a home loan, always purchase insurance, which can help to keep up your payments if you are unable to work because of an unexpected illness or accident.

Should I take on a larger mortgage with another lender?

If you are tempted to take on a larger mortgage with another lender, remember this may allow you to clear your debts, but it can be risky and is often a pattern of more debt. It can be difficult to afford a bigger mortgage even if the interest rate is lower. You may also have to pay arrangement fees if you switch mortgages. Get advice before deciding if you want to take on a new mortgage.

If you want to stay in your home, you must stop your debt from increasing, keep up your payments and pay off your current debt. To do this, you need to consider cutting back on non-essential spending, increasing your income and reducing your mortgage and/or insurance costs.

What is foreclosure?

If you miss your mortgage payments and avoid communication with your lender, foreclosure may occur. This means that they can take your house as payment for the loan. If your property is worth less than the total amount you owe, a deficiency judgment could be pursued and you could owe HUD an additional amount.

Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. Avoid foreclosure if possible. If you are behind on payments, call or write to your lender's Loss Mitigation Department and explain your situation. Be prepared to provide them with financial information and all necessary papers. It is best to call and find out what is needed before arriving.

Another option is to contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 for the housing counseling agency nearest you. These agencies can share information on services and programs offered by Government agencies and private and community organizations that exist to help you. The housing counseling agency may also offer credit counseling. Most of these services are free of charge.

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* Debt Basics is not a lender or broker. We provide information and research on debt help and debt consolidation. Product and service offerings differ by state.