Everyone Else is Doing it, Should I Short Sale?
With the foreclosure rate at an all time high, how are people managing their options in this complex real estate market?
Values of homes have decreased fifty percent or more in some places from their values at the peak of the market and unemployment in states such as California is easily in the double digits. Nationwide, more than thirty percent of mortgage holders owe more than their homes are worth. More than an eigth of all mortgages are behind on their payments or in default on a nationwide level.
If you are at the point of defaulting on your home loan, you basically have three options: loan modification, short sales and foreclosures. Many professionals these days are advising a a short sale, because they offer a benefit to buyers, lenders and real estate agents. The question then becomes, is a short sale truly your best option as a consumer?
Typically, a short sale is not really the best solution, even though those working with you during this time of need may lead you to think it is.
If we take a closer look, we can see the consequences to various actions. The first question is what to do when you realize you can no longer pay your home loan. If you should stop making payments, what will happen?
Right off the bat, it will damage your credit. Your credit is needed to show to lenders you may work with down the line who may have to decide at some later point if you are worthy of making a loan to, and may make you seek out private money lenders in the future. Additionally, your credit score 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.
This important figure is figured using outdated and proprietary formulas using information collected from your entire credit history.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.
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 is in under 680 based on one of the major credit reporting agencies these days, obtaining a loan for any purpose can be terribly difficult (unless you are looking at going with private hard money). If you are concerned about loans for the future, a short sale of your home will not keep your credit in pristine shape, despite what many may want you to believe. So what is the benefit of short selling your home?
The largest benefit is getting the debt you owe forgiven (be sure to read the fine print), and keeping a foreclosure off your credit report. A short sale likely will impact your score about the same as a foreclosure, but with a short sale, you will be able to get another conventional type loan in about 2 years time, rather than 3 or more with a foreclosure.
What you may want to consider is looking into loan modifications. this can often be a difficult 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 avenue to explore.
You need to be sure to do your own research before you make a decision about which course of action you are going to pursue. Also remember that different states have different laws and there will be different ramifications for the various options. Find a highly reccomended real estate agent and/or real estate attorney, make an appointment, and go through all your options before you make a choice. When making this decision, make sure you are comfortable with the direction you choose, good luck!
