This daunting word haunts our television screens as we watch fictional, and sometimes real, people face losing everything. All of the love and care they put into making their house a home was for naught; now the bank owns it and they have to be gone by Monday. We feel sick hearing that word because everyone knows that foreclosure is not something you ever want to experience. So, what is it and how can you avoid it?
Foreclosure is when a homeowner loses ownership of their property to the bank. It's not that the bank ever owned the home, but when you can't pay back the bank, they take your assets. Typically foreclosure happens because homeowners have failed to pay monies owed on debts, particularly a mortgage. As you can see from the infographic below, foreclosure can happen because of a number of reasons:
Homes going into foreclosure is not good for a number of reasons. First, it means you lose your home and all of the money you have poured into it thus far. Homes are such personal things; to lose one is devastating. Second, it will severely impact your ability to secure a mortgage for a home in the future. Even if you completely change your financial situation around, that foreclosure remains on your file. Third, it can lead to a messy legal process of transferring ownership and potential disputes. You never want your home to go into foreclosure.
So how do you avoid foreclosure? The biggest thing is to pay your mortgage on time every month. If for some reason you can't make the full payment one month, talk to your bank immediately. Many foreclosures could be avoided just by being proactive and staying informed every step of the way. This sounds obvious, but in times of stress it can be easier to ignore the bills stacking up. Face them head on.
The other major way to avoid a foreclosure is to not overspend on a home! Do not buy a home you cannot afford. This means not stretching yourself when applying for a mortgage simply so that you can get some extra square footage, but also not buying a home until you can legitimately afford one in the first place. The Canadian dream is not owning a home; it's owning a home you can afford and that will be a place of refuge, not stress.
Questions? Talk to me, your real estate professional, and your bank.
Your Real Estate Professional,