Never Look Again!

Just how is the average American supposed to make their way through the existing real estate market and foreclosure crisis?

Home values have fallen 20-50 percent or more in many places from their 2006 peak and unemployment in states such as California is well into the double digits. Nationwide, over one third of individual homeowners 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 home loan, you have only a handful of avenues to go: foreclosure, a short sale or a loan modification. Many professionals these days are advising a a short sale, as they offer a benefit to real estate agents, lenders and buyers. The question then becomes, is a short sale truly your best option as a consumer?

Often times, it truly is not in your best interest, even though others involved in the process may lead you to think otherwise.

Let’s look at this in more detail.  So you are struggling to make mortgage payments. What will happen if you quit making your payments?

An immediate consequence is that your credit will be harmed. That score is crucial to future lenders who will decide at some later point if you are worthy of making a loan to, and could mean you have to turn to  hard money lenders down the road. Also, it’s also being used by potential landlords and employers. It’s not a figure to be taken lightly.

Your FICO, or credit score is created with old and company owned methods that use information collected from your entire credit history.  According to the credit bureaus, these scoring systems are meant to give an indication of how likely a particular person is to stop paying on a debt during the first two years of it’s lifetime.

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 market, putting together a loan for any reason can be terribly hard (except for the more expensive money offered through private hard money ).  If you are concerned about loans for the future, doing a short sale of your house 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 largest benefit is getting the debt you owe forgiven (be sure to read the fine print), and avoiding a foreclosure on your credit.  A short sale can impact your score about the same as a foreclosure, but by short selling your home, you will be able to get another conventional home loan in about 2 years time, rather than the three or more that a foreclosure will require.

You may want to consider looking into a potential modification of your existing loan .  Oftentimes, this is a difficult process to go through, but if you desire to stay in your home and save your credit, a loan modification may be a better solution to explore.

Be sure to do your own research before you choose which direction or option you are going to take.  Depending on what state you are in, there will be different ramifications for the various options.  Find a good real estate professional and/or real estate lawyer, make an appointment, and discuss all your options before you make a choice.  If you decide that selling is the way you are going to go , find a local specialist .  For example, if you are in the San Ramon area, you should work with a Contra Costa short sale specialist.  When making this decision, make sure you are comfortable with the direction you choose, good luck!