Just how is the average American supposed to make their way through the existing real estate market and foreclosure crisis?

Home values are down fifty percent or more in various locations from their highs set a few years ago and unemployment in states such as California is easily in the double digits. Throughout the country, more than thirty percent of individuals who own their homes owe more than their properties are worth. Better than one out of every eight home loans are delinquent in some respect, and there doesn’t seem to be an end in sight.

If you are in danger of defaulting on your loan, there are three basic options: loan modification, short sales and foreclosures. Many professionals these days are advising a a short sale, due to the fact that they offer an upside for Realtors, agents, lenders and buyers. The question then becomes, is a short sale truly your best option as a consumer?

Typically, a short sale is not really the best solution, even though others working with you in the process may want you to believe it is.

If we take a closer look, we can see the consequences to various actions. The first question is what to do when you realize you can no longer pay your home loan. What happens should you suddenly stop paying?

First, it will really hammer your credit score. Your credit is a key point to lenders you may work with down the line who may have to decide at some later point whether they want to lend you money, and may require you to work with hard money lenders down the road. Additionally, it’s also being used by employers who may be making a decision on whether or not to hire you. Ruining your credit is not something to rush headlong into.

This important figure is figured using outdated and company owned methods that use information collected throughout your life as a borrower. According to the credit bureaus, these scoring systems are meant to give an indication of how likely a particular person is to stop paying on a debt during the first two years of it’s lifetime.

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 these days, putting together a loan for any reason can be terribly hard (except for the more expensive money offered through private hard money lenders
). When sitting down to make your decision on which way to go, doing a short sale of your house will not save your credit, contrary to what many may want you to believe. So what is the benefit of short selling your home?

The main benefit is getting the debt you owe forgiven (be sure to read the fine print), and keeping a foreclosure off your credit report. A short sale usually will impact your score about the same as a foreclosure, but by going through the short sale rather than a foreclosure, you will be able to get another real estate loan in about two years or so, rather than the three or more with a foreclosure.

What you may want to consider is looking into loan modification
. Oftentimes, this is a lenghty process to work with the banks on, but if you would like to stay in your home and save your credit, a loan modification may be a great avenue to consider.

You will want to do your own due dilligence before you make a decision about which course of action you are going to pursue. It will also matter in which state you live, as there will be different ramifications for the various options. Locate an honest real estate professional and/or real estate attorney, sit down, and look at all your options before you make a choice. This is a large financial decision, it is important to get it right!