Why Do Homes Go Into Foreclosure?

Many home buyers and real estate investors often look for foreclosed homes for sale to get a great deal in buying a home. These foreclosed properties are usually owned by mortgage companies or lending institutions and not by the homeowner themselves. These mortgage companies are very eager to get rid of the homes because their organization’s primary aim is to make money from home loans and not to sequester and own the properties. However, you have to keep in mind that buying a foreclosed home will not always give you a good deal. A lender usually does not exert effort in upgrading the property to sell it on a higher price. They normally sell it ‘as is’.

First, we need to understand what foreclosure is. A foreclosure is a legal process where a mortgage company acquires the ownership of an estate (repossess the property). This occurs when the homeowner has failed to make payments, has defaulted, or violated the terms of their mortgage loan.

With the rising number of foreclosures in the market today, many of you would wonder how homes go into foreclosure. Below are the common reasons why homeowners fall into foreclosure:

Negative Equity

One of the common reasons why some home fall into foreclosure is negative equity. Negative equity usually happens when a homeowner buys a house using a mortgage and then the home prices start to drop. After the house purchase, the value of the home decreases below the value of the amount owed on the mortgage, causing negative equity. When this happens, the homeowner does simply give up paying their monthly mortgage. He decides to cut his losses and stop making payments.

Sub-Prime Mortgages

HUD allows giving loans to high-risk borrowers with little capability of keeping up the payments is another contributor to the increasing incidence of foreclosure. Creating risky loans generated significant profits through origination fees and selling the mortgages to investors, even if the homes had to be foreclosed on later.

Unemployment

Employment or job gives every person the financial capability to buy the food they want to consume, buy the clothes they want and pay for the mortgage and other utility bills.  Thus, losing a job can make someone financially vulnerable and makes it impossible for the homeowner to keep paying the mortgage.

Other Personal Reasons

Aside from the aforesaid reasons why homes go into foreclosure, some home owners lose their home due to unwanted circumstances in their lives. One of which is serious medical condition. Serious Illnesses can stop a person from continuing their job, paying for the hospital bills and medications can also drain their financial resources, as a result the home owner fails to pay for the monthly mortgage. Divorce is another reason why people lose their home through foreclosure. When a couple separate or have a divorce, one of the spouses who keep the house may not be able to afford paying the mortgage alone. Lastly, there are also people who fail to pay mortgage and lose their house because of their gambling or substance addictions who usually prefer spending their money to satisfy their habits instead of fulfilling their monthly obligation on paying their mortgage.

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