How are typical Americans to navigate the current foreclosure crisis and come out unscathed in the real estate market?

Home values have slid forty percent or more in some places from their values at the peak of the market and unemployment in various places around the country is well into the double digits. Across the country, more than thirty percent of mortgage holders owe more than their houses are worth. About one in every eight of all mortgages are behind on payments, says the Mortgage Bankers Association.

If you are at the point of defaulting on your mortgage, you basically have three options: foreclosure, a short sale or a loan modification. The pressure these days is toward short sales, due to the fact that they offer a benefit for Realtors, agents, lenders and buyers. The question then becomes, is a short sale truly your best option as a consumer?

Usually, the answer is going to be no, even though others working with you in the process may lead you to believe it is.

If we take a closer look, we can see the consequences to various actions. So you are struggling to make mortgage payments. What will happen if you quit making your payments?

First, it will really hammer your credit score. Your credit score is needed to show to future lenders who might decide at some later point just how good a risk you are, which might make you seek out private money loans if you should need a loan. Also, it’s also being used by potential landlords and employers. It’s not a figure to be taken lightly.

Your FICO, or credit score is calculated through arcane and proprietary formulas using information collected throughout your life as a borrower. A spokesman for Fair Issac Corp., which maintains the FICO scoring system, says its purpose is to predict how likely the borrower is to default during the first two years of a loan.

There are a number of other companies out there other than the big three reporting agencies that have their own scoring models, most running numbers between 400 and 990. If you stop making payments on all of your loans, most of these formulas will drop your score below the 600 mark.

If your credit is in under 680 based on one of the major credit reporting agencies in today’s market, getting a loan of any type can be very hard (short of working with private hard money lenders). If obtaining a loan in the near future is a goal of yours, short selling your property will not keep your credit in pristine shape, contrary to what many in various industries might tell you. So are there any benefits to short selling your house instead of walking away?

The main benefit is getting out from under the debt you currently owe, and keeping a foreclosure off your credit report. A short sale can impact your credit about the same as a foreclosure, but by short selling your home, you will be eligible for another conventional type loan in as little as two years, rather than the three or more with a foreclosure.

What you may want to consider is looking into loan modification. This can be a difficult process to go through, but if you desire to stay in your home and save your credit, a loan modification may be the best avenue to explore.

You need to be sure to do your own research before deciding on what course of action you are going to take. Depending on what state you are in, there will be different ramifications for the various options. Find a highly reccomended real estate agent and/or real estate lawyer, sit down, and look at all your options before you make a decision. This is a huge decision, make sure you have all the facts before jumping!

Tagged with: • • • •

Filed under: Burglar Alarm Wikipedia

Like this post? Subscribe to my RSS feed and get loads more!