With the foreclosure rate at an all time high, how are people managing their options in this complex real estate market?

Residential real estate values are down 50 percent or more in some places from their peak values and unemployment in various places around the country is well into the double digits. Throughout the country, more than a third of individuals who own their homes owe more than their properties are worth. More than an eigth of all mortgages are behind on their payments or in default on a nationwide level.

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, because they offer an upside to real estate agents, lenders and buyers. But that then begs the question, is a short sale best for you or for them?

A lot of the time, it truly is not in your best interest, although those working with you in the process may lead you to think it is.

Why might this be? Let’s take a look. The first question is what to do when you realize you can no longer pay your home loan. If you should stop making payments, what will happen?

Right off the bat, it will damage your credit. Your credit is needed to show to future lenders who might decide at some later point whether they want to lend you money, and could make you seek out hard money lenders if you should need a loan. Increasingly, your credit score is also being used by potential landlords and employers. It’s not a figure to be taken lightly.

This important figure is calculated with secret and proprietary methods using information compiled over time from your credit files. 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.

Other companies have their own formulas that do pretty much the same thing. On another popular credit score scale, which runs from 500 to 990, stopping payments on all your loans will drop you into the low 600s.

If your credit score is below 650 in today’s lending environment, putting together a loan of any type can be terribly hard (unless you are looking at going with private hard money lenders
). If you are concerned about loans for the future, short selling your property will not keep your credit in pristine shape, contrary to what many may want you to believe. So is there really a beneift to going through a short sale?

The main benefit is getting out from under the debt you currently owe, and avoiding a foreclosure on your credit. A short sale will impact your score about the same as a foreclosure, but by short selling your home, you will be eligible for another conventional home loan in about two years or so, as opposed to 3 or more with a foreclosure.

You may want to consider looking into loan modification
. this can often be a difficult process to work through, but if you desire to stay in your house 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 choose which direction or option you are going to pursue. Also remember that different states have different laws and there will be different ramifications for the various options. Locate a highly reccomended real estate professional and/or real estate attorney, make an appointment, and look at all your options before you make a choice. Making this decision is a big deal, and it is important to surround yourselves with professionals who will help you make the best decision possible!