When buying a real estate property, most people don’t directly pay in cash and instead secure a mortgage loan from the bank or other creditors. But when the unthinkable happened like when you lost your job, you need to cut back on certain expenses. What happens when you can no longer afford the monthly amortization?
What Happens If You Can’t Pay?
Dire money problems arise when you lost your source of income, sudden hospitalization, and having accumulating debt that you can’t catch up in paying. Payments are then made very late until you can barely afford it, and thus, accumulating arrears and penalties. Lenders will then tag you as a late payer and worse, as a delinquent.
Your Loan Will Go on Default
In finance terms, the loan defaults when you as the home buyer fails to make a few payments in contrast to the time arranged. Lenders usually offer grace periods and won’t penalize you even if you miss one payment. The drastic consequences of a loan defaulting are bad credit score and foreclosure.
Your Credit Score Will Suffer
When your credit score suffers a decline, it would be hard for you to loan again as you’re included in the blacklisted delinquents. Of course, there are some options you could take, but the common scenario here is that you would be subjected to higher interest rates than the norm.
A bad credit score can last up to seven years or depending on your state laws.
Lender Will Begin Foreclosure Proceedings
When the loan defaults, the next step the lender will take is to send a demand letter in which the content would be issuing you at least 30 days to settle and to communicate with them. If you can’t still make it, they will begin and finalize the foreclosure papers. This means that you could be evicted from your house and they will seize your property. This is the consequence of having a mortgage loan where you have to sign up your house as the collateral.
Lenders Will Put Your Purchased House on Sale
After the lender completes the paperwork and/or someone has purchased your house, you are given enough time to pack your things and leave the house. This can span within a few months after your loan defaulted.
When the lender sells your home, it doesn’t entail that you no longer owe them money. Foreclosures are expensive from legal fees to penalties.
Conclusion
Since a lot of prospective buyers have no hundreds of thousands of dollar readily in hand, they resort to making a deal with lenders. From the consequences listed above, it’s quite scary when you enter into a loan when buying a house. But don’t let these despair you as there are options to alleviate this kind of situation.