10 Ways Poor Financial Management Increases Your Foreclosure Risk

Poor financial management can increase your expenses, decrease your income and impair your ability to refinance your mortgage. Poor financial management can dramatically increase your risk of foreclosure and your risk of being forced to sell your home to avoid foreclosure and it can negatively impact you in many other ways. The good news is that it is something you can control. Educating yourself prior to getting a mortgage and taking on other financial commitments can help you learn to avoid the pitfalls and acquire the necessary financial discipline.

Here are 10 ways to increase your risk of foreclosure by doing a poor job managing your finances - DO NOT MAKE THESE MISTAKES:

  1. Buy the most expensive home that you are pre-approved for and make the minimum down payment.
  2. Get a mortgage that is too risky given your circumstances and capabilities - an adjustable rate mortgage (ARM), an Interest-Only ARM or a balloon mortgage if you do not have adequate cash reserves.
  3. Increase your revolving debt balances beyond your capacity to pay off in the event of hard times - credit card debt, lines of credit, and your Home Equity Line of Credit (HELOC).
  4. Increase your installment debt beyond your capacity to pay in the event of hard times - auto loans, student loans and more.
  5. Do not pay your revolving debt balances off in full and incur extra interest expense.
  6. Miss or make late payments on your revolving and installment debts and incur penalties and/or fees.
  7. Miss or make late payments on your mortgage and property taxes and incur penalties or fees, and risk triggering foreclosure proceedings.
  8. Cosign a loan for someone who does not make required payments forcing you to make payments to protect your credit or suffer the consequences of having bad credit.
  9. Embark on a home improvement project without an adequate budget to absorb delays and cost overruns.
  10. Assume everything was completely taken care of at closing or is being taken care of by others - do not check regularly to make sure payments are being made and applied as they should and ignore communications from your mortgage lender, mortgage servicer, property tax assessor, hazard insurance provider, your bank, and others.

Do yourself a favor and DO NOT MAKE ANY OF THE ABOVE MISTAKES. There are many other ways that people hurt themselves by doing a poor job managing their finances. The more ways in which mortgage borrowers make conservative decisions the lower their risk of foreclosure will be.