Breaking Free: What to do When Your Mortgage is Underwater
Thursday, November 14, 2013, 1:00 AM | Leave Comment
Even with the housing market coming back, many people are still underwater with their mortgages. Because the loan-to-value number is malfunctioning, the banks won’t refinance, and to many people, it looks hopeless. With that being said, it is very important to review your credit options before walking away from your underwater mortgage.
First, know your situation. Not all people use common sense when they act. Using common sense includes, but is not limited to, staying in the home and making payments, making reduced payments, doing a short sale or walking away from the responsibility.
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Think of your Options
One of the most important rules of credit is to pay a loan back. Often, a debt consolidation lawyer will help you afford to make payments, and that could be a real option. After all, when the housing market recovers, will your home recover its value? If so, why walk away? If you’re behind on payments, consider the possibilities that your bank will reduce the monthly payment. You should do whatever it takes to stay in the home.
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The Problem with Short Sales
You can opt for a short sale, but that means taking a lot less money for your home. Someone with ready cash will make a low-ball offer for your home, perhaps as low as 20 to 40 percent of its current market value, and buy you out. It’s only good if the bank agrees to pick up the balance. If the bank balks, it’s definitely not a solution.
Why? Because in most states, the home returns to the bank in a foreclosure and the matter is settled. The blow to your credit is nothing to sneeze at, but you don’t owe money. Unfortunately, walking away from your home mortgage means you will be back in the abysmal rental market.
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Ride the Housing Slump Out
Find a budget solution that frees up enough money to make monthly payments and ride the slump out. Try to stay in the housing market with your current home. If you think about it, that is the best long-term strategy for a speedy credit recovery.
Be credit conscious. Check the housing market temperature before you walk, and pay attention to what a foreclosure will do to your credit. If you happen to notice dark clouds in your credit future for the first time, you may want to rethink your decision. If you are looking with despair at your underwater home, find a credit counselor to advise you.
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