How are typical Americans to navigate the current foreclosure crisis and come out unscathed in the real estate market?
Residential real estate values are down fifty percent or more in some places from their 2006 peak and unemployment in various places around the country is easily in the double digits. Across the country, more than a third of individual homeowners owe more than their homes are worth. More than an eigth of all mortgages are behind on their payments or in default on a nationwide level.
If you are aproaching the point of defaulting on your home loan, you basically have three options: loan modification, short sales and foreclosures. The pressure these days is toward short sales, due to the fact that 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?
Typically, it truly is not in your best interest, even though many working with you in the process want you to think otherwise.
Let`s look at this in more detail. 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. That score is needed to show to lenders you may work with down the line who might decide at some later point just how good a risk you are, which could mean you have to turn to hard money lenders down the road. Also, your credit is 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.
Your credit score is figured using outdated and guarded methods that use information that has been compiled over time, encompassing your entire borrowing life. The people in charge of these scoring systems say that they are supposed to be an indicator of how likely someone is to stop paying on a debt or loan during the first two years.
There are a number of companies other than the big three 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 score is below 650 in today’s market, putting together a loan for any reason can be incredibly hard (except for the more expensive money offered through private hard money
). If you are concerned about loans for the future, short selling your property will not save your credit, contrary to what many will have you believe. 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 will impact your credit score about the same as a foreclosure, but with a short sale, you will be eligible for another real estate loan after about two years, as opposed to 3 or more with a foreclosure.
What you may want to consider is looking into loan modification
. Oftentimes, this is a tough process to deal with, but if you want to stay in your house and save your credit, a loan modification may be a great option to explore.
You have to do your own research before you decide what course of action you are going to pursue. Also remember that different states have different laws and there will be different ramifications for the various options. Seek out an honest real estate agent and/or real estate lawyer, make an appointment, and go through all your options before you make a choice. This is a huge decision, make sure you have all the facts before jumping!