|By Wendy Clay on February 9, 2012
Since the housing bubble burst in 2007, many Americans have found themselves owing hundreds of thousands of dollars more on their mortgages than their homes are actually worth and will ever be worth anytime in the near future. Regardless of whether or not these people can afford to continue making their mortgage payments, many probably wonder if it would be smarter to just walk away from their mortgages than to continue to be pillaged by the bank. If you find yourself struggling to find an answer to this question, here a few things to consider.
Before ceasing mortgage payments, evaluate all of your options. You may qualify for refinancing, mortgage modification, or a short sale, all of which would not damage your credit history. After you have exhausted these options, you need to consider the consequences a foreclosure could mean for your family. A foreclosure stays on your credit report for seven years, and you can anticipate your credit score taking anywhere from a 200 to 300 point blow. This means that as your credit score is recovering, you will probably find it difficult to take out a new mortgage on a more affordable home, qualify for an apartment rental, or even get a new job. Finally, evaluate your own personal ethics before deciding to default. Many people (for instance those heading large corporations) have no problem making financially beneficial decisions over ones upholding their obligations to others, but this may not be the way you operate. Be sure that you will still believe in your overall uprightness even if you do decide that defaulting is your best option.
With this in mind, there are a few things you can do to minimize foreclosure’s adverse effects if you decide it is the right option for you. Since there is typically a three to twelve month lapse between when a person stops making mortgage payments and when the bank actually foreclosing on the house, you would not have to move out immediately. This gives you the opportunity to begin saving the money you would have put towards mortgage payments for any unexpected purchases you may need to make after foreclosure while your credit is recovering. Also, before the foreclosure is actually reported on your credit history it might be a good idea to take out any necessary loans (i.e. for your next home) and find a new place to live.
Deciding to walk away from your mortgage can be a difficult decision, but hopefully the information above will allow you to evaluate your preparedness to endure the financial and ethical uncertainties foreclosure raises.
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