What Leads to Foreclosure?
May 18, 2010
In order to know how to prevent it, it is important to first know what causes foreclosure. Financial instability is the main reason, which is a result of a number of events.
Losing Your Job
Experiencing the loss of a job, whether you’re “let go” or fired or you just decide to quit for whatever reason, can place a heavy financial burden on your shoulders. If you’re the breadwinner in the household, this would cause problems in that your income would be significantly lower. Not only will you have issues making credit card, insurance, or automobile payments on time, but you may also face the hardship of submitting your mortgage payments on time if you’re able to submit them at all. Fortunately, under certain circumstances, you could file for unemployment; but that still may not provide you with enough money to support yourself or your family.
Medical Surprises
Another financial roadblock can occur if you experience an unexpected medical issue. Perhaps you’re a self-employed roofer who fell off a two-story building while at work. You have no workman’s compensation, and your back is injured to the point where you’re unable to climb a ladder, let alone bend down all day to replace shingles. In this case, again you would lose a significant amount of income which can lead to missed payments on necessities.
Foreclosure as a Result of a Family Devastation
If you are one of two working members in your household, losing the other can lead to financial problems, as well. For example, you and your spouse or significant other experience a falling-out that ultimately leads to a divorce or separation. This causes a decrease in the household income. How much you relied on that person’s income to support yourself and/or your family influences your ability to pay bills. If you can’t pay bills, again, you risk the possibility of experiencing foreclosure on your home.
The death of your significant other can cause severe problems not only emotionally but financially as well, if he or she contributed greatly to the household income and had invested in no life insurance policy.
Declining Credit Increases Risk of Foreclosure
Those credit cards are dangerous little buggers. The more you have and the higher your credit limit per card can greatly influence your spending ability. Some people say, “If I don’t have the money to spend, I don’t use my card.” Many people, on the other hand, dig themselves deeper and deeper in debt every day. Those little plastic cards can damage your credit more than help it in many cases. It is important to watch your spending, because the further in debt you sink, the less likely you are to be able to pay your bills when they come in. You dread trekking down your driveway to the mailbox for fear of what envelopes rest inside each day.
Unprepared for Unexpected Home Maintenance
You should also keep money aside in order to save yourself if anything were to happen to your home, especially if your home owner’s insurance coverage is not up to par. Perhaps a destructive thunderstorm blows through your community one night and you wake up the next morning to a tree on top of your garage. If you don’t have enough money aside to hire a professional to perform the correct repairs, you risk the possibility of having to take out a home equity loan in order to pay for repairs. If this is the case, you’ll need an exceptional credit score. Also, be careful then when hiring someone to fix your garage. You don’t want to hire a quick and cheap company that doesn’t get the job right the first time because then you wind up investing more money to get it fixed by a professional the second time around.
These reasons are just a few scenarios you should be prepared for in order to avoid foreclosure on your home. Soon to come: a post on steps to take in order to avoid this danger.