If you are facing foreclosure you may be looking for ways to protect your credit score. If you are over 90 days behind on your mortgage you need to explore the right ways to protect your credit score as best you can. Let’s face it. If you’re at this point you are probably going to lose your home because you’ve defaulted on your home loan unless you have a sudden, unlikely, influx of cash.
When it comes down to it, banks made it far too easy during the past few years for homeowners to take money out of their homes with home equity loans and subprime mortgage refinancing. This was OK as long as the economy was OK and property values kept rising. Unfortunately this was an economic bubble and resulted in the fall we’re seeing now. Now home values are plunging and many homeowners now have inflated mortgages and home equity loans paired with an under valued home. The truly unfortunate part of this situation is that many homeowners can no longer afford their mortgage payment. These people are facing the very real possibility of forclosure. For them, losing their family home is a very real threat.
Fortunately, the good news is that many banks that made these questionable loans have begun to realize the economic realities of the current economic recession and are now giving homeowners several options to solve their mutual problem with bad home loans.
Obviously, the best solution would be to catch up your mortgage and then to make your home loan payments on the agreed upon schedule. Sometimes banks will allow deferrals, make-up payments and other programs to allow you to get caught up and these are on a case-by-case basis. There are also possible state and federal programs that may allow you and your bank to ease into a home loan solution that fits your particular needs. You will need to check with your bank to discover what these options may be in your individual situation. Just remember that the mortgage company is not the enemy, they want a win-win situation if at all possible. They are willing to help you out in most cases although you may have to talk to several people until you find someone in the right department to work with you on your situation.
In some cases, banks will renegotiate a home loan. Some banks are more inclined to do this than others so you will need to check with the past due loan or the loss prevention department at the bank. Always stay in communication with the bank so that you will be in a good position to take advantage of home loan modifications that may be available to you. On the flip side, some banks won’t negotiate for various reasons so be prepared for other options if this won’t work for you.
One option that is being offered by home loan banks is called a short sale. In this scenario the bank permits you to sell your home at or below the current market value. This allows the home to sell quickly, regardless of what is owed on the home loan. For example, let’s say that your mortgage is $480,000, but currently comparable homes in your area are selling for $390,000. If the bank permits you to do so, you can accept an offer for $390,000. It is possible that you could take even lower bids. In turn, the bank will take a loss on the sale of the home because the sale will not cover the full mortgage loan amount, but the bank will not be stuck with a home they don’t want in their inventory. So far as the homeowner goes, in most cases they will be able to simply walk away after the sale and be free and clear of the original home loan.
To effect the short sale of your home, I suggest that you engage the services of a professional real estate agent who is knowledgeable about short sales and has had some experience and success with these kinds of sales. It is in your best interest to bring in a professional to help you with this because they will know proper way to handle the paperwork involved and other details. Also, since they won’t be emotionally involved in the sale they can offer a practical view of the situation to all parties involved. Remember that in most cases that the bank that holds the home loan will end up paying the realtor fees.
There are disadvantages to a short sale. Yes, your credit score will suffer although it will not be as bad as it would be with a foreclosure of bankruptcy. It has been estimated that your FICO score can drop 100 points with a short sale. But compare this to drop of over 200 points with a foreclosure or bankruptcy. Also, with a short sale, you will not be able to buy a new home for at least 2 years. For a foreclosure or bankruptcy this can be at least 3 years if not much longer.
Bankruptcy is the final solution that might allow you to stay in your home. You will still need to catch up payments and stay current on your payments if you do a Chapter 13 bankruptcy. This will damage your credit but you won’t lose your home if you are able to make your payments.
Lastly, there is foreclosure. Sometimes this will happen in spite of your best efforts to avoid it. Should this happen to you be prepared for some struggles but stay strong and avoid taking on any new debt for several years. Save your money and, with any luck and the passage of a few years of time, you will be able to find a new home to purchase. Just don’t make the same mistakes again.
I hope this article has helped you with your questions about foreclosure prevention.