Short Sale Tips

Posts Tagged ‘how to address foreclosure’

Foreclosure, short sale, loan modification, why are all of these terms becoming so common, and what do they mean to an individual home owner?

Real estate values have fallen fifty percent or more in some places from their 2006 peak and unemployment in California is well into the double digits. Nationwide, more than thirty percent of individuals who own their homes owe more than their houses are worth. About one in every eight of all mortgages are behind on payments, says the Mortgage Bankers Association.

If you are in the position of defaulting on your mortgage, there are three basic options: loan modification, short sales and foreclosures. A lot of the advise you will get these days would point towards the short sales, due to the fact that they offer an upside for buyers, lenders and real estate agents. But that then begs the question, is a short sale best for you or for them?

Usually, a short sale is not really the best solution, even though many working with you in the process might want you to think it is.

Why might this be? Let’s take a look. So you are struggling to make mortgage payments. What happens should you suddenly stop paying?

Right off the bat, it will damage your credit. Your credit score is crucial to lenders you may work with down the line who might decide at some later point just how good a risk you are, and could make you seek out private money loans 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Your FICO, or credit score is figured using outdated and proprietary formulas that use information that has been compiled over time, encompassing your entire borrowing life. According to the credit bureaus, these scoring systems are meant to give an indicator of how likely you, as a borrower, are to default on a loan during the first two years it is out.

There are a number of companies other than the big three that have their own scoring models, most running numbers between 500 and 900. If you stop making payments, most of the models will lower your score into the 600 range or lower

If your credit score is below 650 these days, getting a loan for any purpose can be terribly difficult (unless you are looking at going with private hard money lenders). If you are concerned about loans for the future, doing a short sale of your property will not save your credit, contrary to what many may want you to believe. So are there any benefits to short selling your house instead of walking away?

The largest benefit is getting out from under the debt you currently owe, and keeping your credit report foreclosure free. A short sale usually will impact your score about the same as a foreclosure, but by short selling your home, you will be eligible for another real estate loan in about two years or so, rather than 3 or more with a foreclosure.

A potentially better option to consider is loan modifications. Oftentimes, this is a long process to work with the banks on, but if you would like to stay in your house and save your credit, a loan modification may be a great option to consider.

You have to do your own research before you make a decision about which direction or option you are going to pursue. Depending on what state you are in, there will be different ramifications for the various options. Find a good real estate agent and/or real estate lawyer, make an appointment, and talk about all your options before you make a decision. Making this decision is a big deal, and it is important to surround yourselves with professionals who will help you make the best decision possible!