Pre-foreclosure loans are helpful in stopping foreclosure and for home sales. However, they are also an additional layer of debt. If you’re willing to be responsible in your use, a pre-foreclosure loan can get you out of a bind and help save your credit rating.

But be careful from the beginning, if they are used without any expectation of increased income later on, you will most likely find yourself worse off. Pre-foreclosure loans are only useful as long as the pre-foreclosure period does not end. Your lender will only give you the time that has elapsed before foreclosure to make your mortgage payments before foreclosing on your property. Pre-foreclosure periods vary from state to state, so check your local laws for more details.

If you say to yourself “I’m lucky I can only pay this medical bill” and you’re also having trouble paying your mortgage, then taking out a loan like this might be right for you. Needing cash to pay for damage to your home caused by flood, wind, hail, or fire that is not covered by insurance can also be a perfect fit for a loan of this type.

If you must sell your home because you have a significant loss of income, then a pre-foreclosure loan can give you the time you need to make the sale. Typically, a real estate investor will offer you a loan at a discount of 15% to 20% of the value of your property that you will use to pay off your mortgage and then sell the home to the investor. If you owe more than 80% of your property’s value, then it’s certainly preferable to lose some equity on the sale of your home than to default on your mortgage altogether.

Investors will often contact you directly if you have missed some payments in a period leading up to foreclosure because foreclosures are public information. If people who invest in real estate consider your property to be a good investment, then you have a better chance of negotiating a loan with them. Not only will this fix get you out of a bind, but it can also keep your credit score intact and leave some money in your pocket to boot!

If you are having trouble finding an investor to provide you with a loan, consider hiring a real estate agent to find an investor for you. The investor will then deal directly with the real estate agent, and you only have to pay the real estate agent their commission and you don’t have to worry about any of the details.