This question has become all too common today. Whether due to job loss, a substantial reduction in your income, or a mortgage that is resetting at a higher payment, there are more families than ever that find themselves unable to make their monthly mortgage payment. With the devastating losses in the housing market, you might even owe more money than your house is worth. So what is the answer?
Walking away from your home and letting it go into foreclosure can be very tempting for many, especially when they may feel discouraged about the state of our economy today. But don't walk away so quickly. There are some things you need to consider before you make your decision. As a Certified Distressed Property Expert, I have taken extensive training on just what choices homeowners have, and the long term impact on their families from the choice they make today.
The first option you may want to consider is a loan modification. Lenders have stepped up their efforts to modify home loans to enable families to stay in their house. There are specific qualifications you must meet; guidelines instituted by the government that lenders must abide by. First, you must have enough income to qualify. If you have suffered a job loss and are living on unemployments benefits, you will not qualify for a loan modification. Second, your housing costs cannot exceed 31% of your gross income. So if you make substantially less due to job cuts, you may not be eligible. But for those who meet those criteria, the lenders are reducing interest rates as low as 2%, and increasing the term of your loan to as long as 50 years, to help you get your payment down to the 31% threshhold. Writing down the priniciple balance on your loan is rare. Don't plan on that from your lender.
If you don't qualify for the loan mod, you may still have the option of a short sale. To qualify you must show a true financial hardship. You will have to document your income and monthly expenses. You will have to produce copies of tax returns, paystubs, and bank statements, just like when you purchased the home. It will be a lot of paperwork, but a good REALTOR can guide you through the process. In fact, you may not even have to talk to the bank, your REALTOR can do that for you. If you do decide to pursue a short sale, you may find that to be to your advantage.
If you don't want to invest the effort in a short sale, you can walk away from the home and let it go into foreclosure. Or, you can do a deed in lieu of foreclosure, where you simply sign the home back over to the bank. This may sound easy, but it can also have the greatest, and longest lasting, impact on your credit. It is vital that you speak to professionals for legal and tax advice so you are fully informed on the consequences of your decision. What you do today, determines what your choices are in the future. Check back in a few days, and I will review the impact of a short sale vs. foreclosure on your credit rating, your ability to buy a home in the future, and even your security clearance in government jobs. Knowledge is power.