Short Sale Nation?
Foreclosure, short sale, loan modification, why are all of these terms becoming so common, and what do they mean to an individual home owner?
Values on homes are down thirty, forty, even fifty percent or more in various locations from their values at the peak of the market and unemployment in California is easily in the double digits. Across the country, over one third of mortgage holders owe more than their properties are worth. About one in every eight of all mortgages are behind on payments, says the Mortgage Bankers Association.
If you are aproaching the point of defaulting on your home loan, you basically have three options: a short sale, loan modification or a foreclosure. Many professionals these days are advising a a short sale, because they offer an upside to Realtors, agents, lenders and buyers. But that then begs the question, is a short sale best for you or for them?
A lot of the time, a short sale is not really the best solution, although others involved in the process may want you to believe 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 a key point to future lenders who will decide at some later point if you are worthy of making a loan to, and could force you into working with private money loans if you should need a loan. Also, it’s 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Your FICO, or credit score is figured using outdated and patented formulas using information collected throughout your life as a borrower. These credit scores are basically an indicator of how likely an individual is to default during the first two years of a loan, and are used by almost everyone who extends credit.
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 is in under 680 based on one of the major credit reporting agencies these days, finding a loan of any kind can be very hard (except for the more expensive money offered through private hard money lenders). When sitting down to make your decision on which way to go, a short sale of your home will not save your credit, 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 keeping your credit report foreclosure free. A short sale will impact your credit about the same as a foreclosure, but by short selling your home, you will be allowed to get another conventional home loan in as little as two years, rather than 3 or more with a foreclosure.
A better option is to look at loan modification. Oftentimes, this is a difficult process to work with the banks on, but if you desire to stay in your home and save your credit, a loan modification may be the best solution to look at.
You will want to do your own due dilligence before deciding on what course of action you are going to pursue. Depending on what state you are in, there will be different ramifications for the various options. Seek out a good real estate professional and/or real estate attorney, make an appointment, and talk about all your options before you make a choice. This is a large financial decision, it is important to get it right!