As a homeowner the day may come that you dread: You owe more on your mortgage that your house is worth. There are many reasons this could have happened. Property values may be dropping in your neighborhood. You may have made a bad decision when taking out your loan by borrowing more than you could afford. You may have refinanced to let the equity in your home work for you and gotten bit. Whatever reason, you’re now “upside down” in your home.
You’ve tried to solve the problem, with either Forbearance or a Payment Plan or applied for a loan modification and been rejected. Your options are disappearing. The important thing is that you take SOME action. Letting your bank foreclose is not going to look good in your future.
Short Selling is an option you can look into. Put simply, it’s cutting your losses. You sell the house for less than its worth, then use that money to pay off the bank. The bank doesn’t get back all the money it’s owed but it spares itself the burden of going through a foreclosure and having to resell the house. Banks won’t always accept this solution but you won’t know until you ask.
The other option is Foreclosure. Except it really isn’t your option, it’s the banks. They decide they have had enough of your late payments or no payments and decide to evict you and sell the house.
There may not seem to be a lot of difference between the two, but on your future credit report there is. A short sale shows future lenders that you took responsibility for your financial situation and tried to do something about it.
If you haven’t bought your home yet and you want to avoid the things discussed above, then listen up. Pre-qualify for a loan so you know from the start what you can afford to spend. If you go ahead and find your house ahead of time and then try to get a loan, you may find a way to get a larger loan, and that is not doing yourself a favor at all. You will not pay off a loan you cannot afford; it’s as simple as that.
Sign for the smallest loan you can get to cover the house (no, you don’t want extra for fixing things up) and pay it off as quickly as possible. Make as large as a down payment as possible and if you can make extra payments, or larger payments than necessary. The sooner this mortgage is paid off the better.
For more information visit Legal Loan Bailout.