Why shouldn't I just walk away from my house?
Also called "strategic default", choosing to walk away from your house results in a foreclosure for you. Most folks decide to do it because they don't realize all of the implications a foreclosure has on their lives for years to come. They also don't realize they've got other options.
First, let's talk about the ways walking away will impact your life.
1. Your Credit Score: A foreclosure will lower your credit score anywhere from 250 to over 300 points (this can vary, but this is the usual range). Typically, this hit to your credit will remain in place for over 3 years.
2. Your Credit History: Foreclosure will remain as public record on your credit history for 10 years or more.
3. Security Clearance: Foreclosure is the most challenging isssue against a security clearance outside of a conviction of a crime. If you are in the military, on a police force, in the CIA, work for a casino, or any other position that requires a security clearance, in most all cases, your clearance will be revoked. With a foreclosure on your record, you are considered a "high risk" employee and the end result is typically reassignment or termination.
4. Current Employment: Employers have the right and are currently checking the credit regularly of employees in sensitive situations. A foreclosure can be grounds for immediate reassignment or termination.
5. Future Employment: Most employers require a credit check on all job applicants. Having a foreclosre on your record is one of the worst possible items to have on your credit and will, in most cases, greatly challenge your opportunity for employment.
6. Future Loan Approvals: If you lose your home to foreclosure, you are unable to qualify for a Fannie Mae backed loan for a period of 5 years. Fannie Mae backed loans include FHA, VA, and conventional loans.
So, now you're thinking that walking away might not be the route you want to take. Let's take a look at some alternatives to foreclosure.
1. Loan Modification: Yes, some lenders are actually doing these. A loan modification happens when a lender agrees to modify your mortgage, in some way. Whether it's the interest rate, the terms of the loan, the principle amount of the mortgage, or monthly payment, some part of your loan is modified. Contact your lender to find out how you may be able to modify your loan into a plan that works for you. Please note: Should you receive a loan modification, it is imperative that you read all of the criteria, conditions, and terms of your modification. If your loan is modified, you may still be responsible for the principle loan amount, and extra fees/penalties.*This can affect your credit, but not the extent of a foreclosure.
2. Deed-in-Lieu: In this situation, a homeowner opts to give the house back to the bank, instead of going through the foreclosure process.
3. Renting: If you can get rent that will cover your mortgage payment, renting out your residence might be an option to consider. There are other fees that go along with renting out your home (insurance, repairs to the property, the mortgage payment if the renters do not honor their lease), so, if you decide to consider this option, please run the numbers to assure you will cover your mortgage payment.
4. Forebearance or Repayment Plan: This option occurs when a plan is made with the lender to repay all of the back payments and extra fees, late fees, and penalties, until the borrower is current. Please note that a homeowner is not consider current with the lender until ALL payments are current (late fees and penalties included) ,not when the plan is established. *This can affect your credit but not as bad as a foreclosure.
5. Short Sale: This is a great option for most folks thinking of walking away. This occurs when the homeowner owes more than the home is worth and the lender agrees to allow the homeowner to sell it for less than the amount owed on the loan. A short sale is a dignified alternative to foreclosure because it may not negatively impact your life, like a foreclosure. We'll go over the affects of a short sale in the next post.
Interested in talking about some alternatives to foreclosure? Please contact me. You don't have to suffer the wrath of a foreclosure on your record. You can get out from under your home and be in a better place on the other side.
480-215-7769 Direct or athertonerin@gmail.com.