Keeps you in the home
Refinance: a new loan that pays off the old one
If you have meaningful equity and can document income, a refinance can pay off the defaulted loan entirely. In active foreclosure this gets harder, because most conventional lenders will not touch a loan in default.
This tends to work when
- You have real equity in the property
- You have documentable income and credit that has not fully collapsed
- You have enough time before the sale date for an appraisal and underwriting
This tends not to work when
- There is little or no equity
- The sale date is within a few weeks
- The only offers available are hard money loans at rates that guarantee you default again
How it actually goes
Find out what you actually owe and what the home is worth
Get a payoff figure from your servicer and an honest read on value. Refinancing decisions live or die on this gap.
Be careful about who you borrow from
Distressed homeowners attract expensive lenders. If a rescue loan carries a rate you cannot sustain, it postpones the problem and consumes your equity doing it.
Straight answer
We mention refinancing because it is a real option for some people with equity. We also see it used to strip equity from homeowners who were going to lose the house anyway. Read the terms carefully, and have someone who is not selling you the loan read them too.