Top 10 Reasons Persons Lose Their Homes to Foreclosure

Foreclosures have become much too commonplace. Foreclosures are also happening to people in all income brackets and all kinds of neighborhoods. There are several reasons that contribute to these foreclosures.

  1. Adjustable Rate Loans. Adjustable rate mortgages are very tempting for home buyers because of the low initial payments. Often times individuals who enter into these loans do not fully understanding the potential risk involved. The payments often increase much more and much faster than expected. This often leaves the the homeowner unable to meet these higher monthly payments.
  2. Death. The death of one of the primary income generators in the household can bring a family to the place of foreclosure. Usually this is due to a lack of sufficient life insurance to assist the family with the loss of income.
  3. Unemployment. With high unemployment, many homeowners are finding themselves dealing with long-term unemployment. This can deplete savings and eventually bring finances to a point where the mortgage can no longer be met on a monthly basis.
  4. Balloon payments. Homeowners at times have taken out low interest rate loans which require refinancing or a balloon payment in 3 to 5 years. When the time for refinancing occurs the financial situation of the homeowners has either deteriorated or not reached the level expected. This creates difficulty in obtaining the necessary refinancing to keep the home.
  5. Divorce. When a marriage dissolves, the home mortgage is usually the one debt that neither party can afford to pay on their own salary alone. Since it can take several months for a divorce to process through the courts, the mortgage payments often get left unpaid. The emotional trauma of a divorce also can leave individuals in a place of despondency that causes them to place financial matters at a very low priority.
  6. Health Issues. Serious and ongoing health issues have contributed to many mortgage foreclosures. Health issues in a family can affect their financial stability from several different directions. There can be mounting medical bills or an inability to work due to one’s own illness or the need to care for another family member who is ill. Any of these or a combination of them can result in a shortage of finances.
  7. Financial irresponsibility. This is one of the most preventable reasons for foreclosures. This is not necessarily a matter of a lack of income or debt overload. Occasionally, individuals enter into a mortgage without the personal discipline to give proper priority to such a large obligation. In these instances, an individual has gotten behind in their mortgage payments out of neglect and are overwhelmed with the mounting interest and penalties that have accrued on top of their missing payments. Often times these individuals have also provided a very small down payment or none at all, which gives them even less incentive to prevent foreclosure.
  8. Credit Card Debt. Credit card accounts can be easily obtained and easily overextended. When payments aren’t met on credit card accounts the penalties and interest multiply very quickly. This in turn can increase the minimum payment amounts greatly. Individuals often end up in a financial crisis when both their credit card debt and mortgage payments battle for priority in their monthly budgets.
  9. Gambling. Gambling addictions are becoming more widely recognized as a cause for mortgage foreclosures. Gambling addicts often times attempt to hide their financial losses from their spouses by delaying payment on their monthly obligations. This route is usually self-defeating as the unpaid bills begin to mount. Often times the situation is so out of hand by the time it is discovered that foreclosure is inevitable.
  10. Relocation. With the downward slide in the economy and housing sales, relocation can leave a house sitting on the real estate market for months or even years. Occasionally, homeowners who can no longer afford to finance two residences will opt to go through foreclosure as a means of relieving themselves of the financial burden.

As you can see from this list, some of these reasons for foreclosure are fully preventable and others are totally unpredictable. Surprisingly, many foreclosure could be prevented simply by addressing the issues directly with the mortgage company as soon as there is a problem. Many mortgage companies would much rather assist you in coming up with a solution than having to foreclose on your loan.

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