There’s few things homeowners dread more than the threat of foreclosure. And with good reason. Not only does foreclosure leave a black mark on your credit rating, it can ruin your eligibility for future ownership. And worst of all? It ruins your self esteem.
You’ve worked hard all these years to own your home. But just like nearly half a million Americans reported in 2020, you may be facing the inevitability of foreclosure. You’re not alone. But what happens to your home’s equity in a foreclosure? First, let’s define what equity really is.
What Is Home Equity?
In the most simple terms, home equity can best be defined as the approximate value of the down payment you made on a home. But that value can be variable. If the down payment you made on a $300,000 home was $75,000, then the equity is $75,000 if you were to sell your home. But depending on both an increase in value of your home as well as your mortgage payments, your equity could increase accordingly.
Why Was My Home Foreclosed On?
Typically, foreclosure comes as a result of lapsed mortgage payments, with pre-foreclosure occurring after three missed monthly payments. While many banks will offer homeowners some leeway in catching up, it’s ultimately the lender’s decision. And more often than not, it will include interest rates and late penalties which can be exorbitant.
This isn’t always the case, however. Foreclosure can come about as a result of everything from judgement liens to missed child support payments; and in some cases, missed credit card payments.
What Happens to My Home Equity in a Foreclosure?
In the vast majority of cases, you’re still entitled to your home equity during a foreclosure. That’s because the value of your home isn’t contingent on equity. If your home increases in value and is foreclosed upon, your equity can sometimes remain the same as your initial down payment or sometimes increase depending on your home’s current value.
There’s just one catch. Your home equity can actually decrease as a result of late fees and missed payments. You’re still entitled to it. But the amount of late fees, penalties and missed payments you owe will be tacked on. If you currently owe $20,000 in fees and penalties and your initial home equity was at $75,000? It’s now worth $55,000. And you won’t have a chance to see the remainder.
Can I Sell My Home During a Foreclosure?
In the best case scenario, you can make arrangements with a lender to pay back the mortgage you defaulted on while continuing to make monthly payments. But best case scenarios are rarely realistic for most homeowners.
The easiest way to satisfy lender demands during a foreclosure is to sell your home fast. Except selling your home fast is rarely guaranteed. It can take over three months to sell your home; and that doesn’t always meet many lender’s demands. One solution is to sell your home to a reputable home buying company. Home buying companies specialize in purchasing homes under foreclosure regardless of how much you might owe; and in many cases, in under two weeks. Not only will you receive your home equity, you’ll receive near fair market value of your home. They’re safe, reliable and convenient. And they’re one of the best ways to save both your financial reputation while meeting your lender’s obligations.
Interested in learning more? Contact us today at (501)369-0365 or fill out the form below. We look forward to speaking with you about how you can sell your house fast!