Is refinancing your loan a good option to stop foreclosure on your home? Sometimes it is the best option for homeowners facing foreclosure. Refinancing your loan can help you stay in your home and possibly create a better financial situation. Additionally, if you have a competent mortgage broker, he or she should be able to set your closing date so that you get to ?skip? a mortgage payment. This month of ?no mortgage payment? is often exactly what someone needs to get him or herself back on track financially.



However, refinancing your loan isn't always the best solution given your specific situation. Refinancing can be a long and difficult process especially if you are already one or two payments behind on your mortgage.

While you have to pay for an appraisal anytime you refinance your loan, the key in a foreclosure situation is that the loan to value (LTV) requirements be met. Lenders are very strict about only refinancing when a LTV meets their guidelines. If your appraisal does not fall within the LTV guidelines that the lender has set then they will not underwrite your loan. So you might pay for an appraisal ($350-500) and not be able to use it. If you try and refinance with another lender, they most likely will want their own appraisal done, so you can see that appraisal fees can begin to add up very quickly.

Many times in a foreclosure refinance, you are required to pay points. One point is equal to one percent of the loan amount. So if you are borrowing $250,000, and the broker is charging you 2 points, that is an extra $5,000 you are paying just in broker fees. Then you must also add in all of your possible closing costs: settlement fee, lender fee, underwriting fee, transfer tax, recordation charges, title insurance and credit report, just to name a few. Do not be surprised if your closing costs alone add up to ten, fifteen, maybe even $20,000. (Closing costs differ from State to State).

After a refinance, your loan balance is going to increase, because you are borrowing enough to pay off the loan, and all of the late fees, and attorneys? fee that come along with a foreclosure. Add to the fact that your credit score is much worse now (due to your late payments) than when you originally got the loan, and you are going to be paying an increased interest rate on a larger loan amount.

There are some instances where homeowners refinance into a new, bigger payment, and they can handle it. Most of those instances usually were based on short-term job loss, or perhaps a medical emergency that had to be paid for. Unfortunately, we meet with many clients who want to refinance, but are not realistic about the new payment that they will be saddled with. This is always an important consideration when refinancing.

Now that you understand how refinancing may help stop foreclosure on your home, the most important thing you must remember when considering refinancing is to make sure you carefully read all the paperwork before the closing! Don't get to the closing table to find out you have a pre-payment penalty and additional closing costs you did not anticipate.

If you decide that refinancing is your best option it is important to make sure you find the right person to help you out. It is surprising how many homeowners just turn on their computers and start searching the Internet in search of a new loan. You will want to work with a local broker or bank that understands your area and you can deal with on a local basis.