Consumer

Expert Tips To Avoid Foreclosure

NEW YORK (CBS) ― In a sign of just how bad the housing market could get, more than 2.5 million mortgage holders could default on their loans this year, according to one estimate.

But there are ways homeowners can lower their odds of winding up as one of them, BusinessWeek magazine's personal finance editor, Lauren Young, told Early Show co-anchor Hannah Storm Tuesday.

Young says the housing market and credit crunch are likely to get worse before they get better, so it's probably going to get even harder to borrow money, because lenders and institutions are very nervous, and no one wants to be left holding the bag. So, it's a good time to take stock, fiscally.

If you hope to buy a home in the next few years or if you already own a home and are on shaky ground, you want to get to safer ground as soon as possible, Young observes:

Boost Your Credit Rating

Lenders are getting stricter about whom they'll give loans and mortgages to. The higher your credit rating, the lower your credit card interest rate will be, and the less risky lenders will see you as when you apply for a mortgage. Take this time to get your credit score from annualcreditreport.com or from Fair Isaac at myfico.com. FICO is the most widely-used credit score. Start taking steps to hike your score; there are simple things you can do to raise it by amounts that may seem insignificant, but every bit will help down the road and make you more attractive to lenders.

Make a Deal

If you're having trouble covering your mortgage, talk to your lender as soon as you start to see trouble brewing. Lenders want to be paid back, bottom line. They don't want to be left holding real estate, a "non-performing asset" for them. They want to help you work it out, so they get their money back. And that's why you can't just throw the statements in a drawer and ignore your phone calls. Go to your lender with a payment plan offer. Say to the company, "I can afford to pay you 'X' amount every month for 'X' amount of time, or I can only afford to pay the interest." Show that you want to make it work and that you'll pay as much as you can. That will give you a lot more credibility with the lender.

Reread Your Mortgage

Know your mortgage. Go through all the documentation and read every page and understand what you are signed on for. Especially if you have an adjustable rate mortgage, make sure there are no landmines facing you. Know what's going to happen now, rather than later, so you can prepare. If you have an ARM, check out how the rate is calculated, so you have a strategy in place for how you'll pay when things change.

Shop Around

This applies to everyone. It's important right now for the first-time borrower, for those looking to refinance, etc. People say lenders are closing up shop overnight, literally just going away. Have backup financing in place. Have a second mortgage lined up. Go directly a big bank and not to a mortgage company. Banks are capitalized, and they can cover and make loans that some of the mortgage companies just don't have resources to.

BusinessWeek adds a fifth tip: "Rebalance your portfolio. During the housing boom, many people plowed every dollar they could into their homes. With most or all of their net worth in real estate, these consumers may find that the downturn has derailed plans for early retirement. Don't panic and try to sell your home in the middle of a credit crunch. Do start to think about ways to return to a healthier mix of investments. People in their 30s should put much of their net worth into equities and their homes."

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