Foreclosures does not happen because home owners are irresponsible but because major shocks lead to inability to pay the mortgage.

Foreclosure is a dreaded word for every home owner. Unfortunately, many people have or will suffer at least once in their lifetime the pain of a foreclosure. Sometimes you just can’t make anything to keep your home but sometimes you can do a lot to save it. In any case, before you sign for a mortgage loan, see some of the most common reasons (except mortgage fraud, of course, in which foreclosure is planned in advance) for foreclosure. If you are aware of these risks, the chance that you will be able to prevent foreclosure is higher. So, here are the reasons arranged in no particular order:

  • Unexpected job loss. Even when the economy is in top shape, you could lose your seemingly stable job unexpectedly and it might be hard or outright impossible to find another job with comparable compensation. In times of recession it might be very difficult to find any other job, thus leaving you only with the means to survive one. Unemployment can last for months or even years, so have this in mind when you apply for a mortgage.

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    Medical emergency. Medical emergencies can be a reason for inability to pay your monthly installment on time and respectively can lead to foreclosure because serious illness can cost a lot in terms of money for treatment and loss of income due to inability to work.

  • Death of a close relative. Medical emergencies are bad but death of a close relative – i.e. a spouse, parent, child, or sibling can really shake your life and your finances.

  • Divorce/marriage. Change in the marital status can be costly. When you divorce, you might lose the home to your former spouse, who will own it but very often neither of you keeps the mortgaged home and foreclosure is inevitable. Marriage and family life require more money and you can easily run out of money and become unable to pay your mortgage.

  • Other unplanned debts. Major home renewals, education expenses, accumulated credit card debt and similar events can also cost a lot, thus making it impossible for you to pay your mortgage. While you can plan your expenses, it takes a mild hurricane to make your plans go with the wind and impose you home renewal.

  • Increase of the adjustable interest rate. Adjustable interest rates can vary a lot and even .5-1% rise can increase your monthly payment with a few hundred dollars.

The above reasons are more or less of external nature – i.e. except marriage/divorce and some debts, most of them occur without your involvement and there isn’t much, if anything at all, you can do to prevent them. However, life is not that brutal – you could shop for insurance, which covers some or most of the above events and this way get some protection when trouble strikes. Also, there are ways to do your best to avoid foreclosure, so sometimes it is all up to you to prevent the loss of your home.