Foreclosure Loans

By Barney Stinson

Foreclosure Loans are an option for homeowners who are likely to lose their home due to foreclosure. With the economy at an all time low, foreclosure has become quite common as families struggle to make payments. Losing a job due to layoffs or other circumstances can make keeping up with mortgage payments next to impossible, especially for a family that is already mired in debt. As a family falls farther and farther behind, it is often forced into foreclosure. Traditionally, families have turned to other family members and friends for foreclosure loans, as these enabled the family to make small payments with low interest. However, fewer and fewer people are able to provide the amount of funding necessary for a foreclosure loan, even if the loan would be for a close friend or family member. With nobody else to turn to, the family may be forced into foreclosure.

Fortunately, several lending institutions are making foreclosure loans available as a possibility for families who have fallen on hard times. A foreclosure loan allows the lending institution to buy up the homeowner's debts and make more manageable payments to the company that has saved them from foreclosure. In these loans, credit and income are rarely the determining factor for approval. This is good, because most families seeking foreclosure loans have either lost their income, or have found their credit scores sinking lower and lower as they struggle to keep up with mortgage payments.

Foreclosure loans are a good alternative because they allow the homeowner and the company or institution supplying the loan to negotiate smaller and longer-term payments on the loan. Many of these institutions also allow low interest on the loan payments, so that homeowner will not have to rack up huge interest payments just to hang on to his or her house.

Types of Foreclosure Loans

There are several types of foreclosure loans available to homeowners. One viable option for homeowners in several states is being approved for a State Foreclosure Loan. State refinancing programs provide short-term emergency funding for homeowners in danger of bankruptcy or foreclosure. States offering these low-interest foreclosure loans include Maryland, Connecticut, Michigan, New York, New Jersey, Ohio, Pennsylvania, Massachusetts, and Delaware. Each state's refinancing program has different requirements for being accepted for a loan and terms of that loan and payment once accepted. For residents of states offering these refinancing programs, it is a good idea to look into them, as they tend to offer extremely low interest and much smaller payments than private lenders.

Alternatives for a Foreclosure Loan

Unfortunately, most states still do not offer foreclosure home loans, so homeowners must search for alternative options. A "Hard Money" lender may be a good option to look into. Hard money lenders offer foreclosure loans to homeowners in danger of foreclosure. These institutions are usually small and not well-known, but they often will give allowances that other foreclosure lenders will not, such as forgiveness for late payments or renegotiations on payments and interest. Hard money lenders have the tendency of charging high interest, but for the homeowner in such a dire situation that he or she cannot gain approval from any other lender, the high interest charged is a fair trade-off for avoiding foreclosure.

After the mass numbers of homes that have gone into foreclosure, banks are growing more willing to help homeowners avoid that fate. This is not so much out of concern for the homeowner, but because most lenders lose an average of $50,000 each time a home goes into foreclosure. Sometimes is is wiser for the lender to offer foreclosure loans, despite the high risk. Institutions such as Bank of America have worked out programs that allow borrowers and lenders to modify mortgages so that that the payments are more affordable.

Pros and Cons of Foreclosure Loans

Clearly there are many positive aspects of foreclosure loans. They allow families to keep their homes during emergencies and help negotiate payments and low interest. Despite these positives, there are negative aspects of foreclosure loans to watch for. These include lenders who charge high interest, inflexibility with payment plans, and the potential of being scammed. Loan modification scams have grown common as several homeowners turn to foreclosure loans. These scams deceptively offer quick loan payments and low interest to borrowers, but require a fee in advance. The scams take the fee and then never follow up on the loan.

Foreclosure loans are an option for the desperate homeowner, but it is important to speak with a financial advisor first, so that you can find the loan that is best for you and avoid being scammed.