When your mortgage is underwater and you owe more than your home is worth, one of the things you may think about doing is stopping your payments and allowing your home to go into foreclosure. This is one option, but it has significant consequences that you should consider before deciding that it’s the right move.
There are plenty of options to help save your home from foreclosure and some to get out of debt by selling your home for less than its value. For example, mortgage modifications might make your home more affordable until home prices rise again, or you may get your lender to agree to a short sale to sell your home for less and walk away without having to pay the difference.
Is foreclosure a good idea when you’re in debt?
Foreclosures aren’t a great idea for a few reasons. The primary issue is that foreclosure ruins your credit score. A foreclosure may make your credit score drop by 200 to 300 points, which means that you may not be able to get credit or to take out other leans.
A foreclosure also means you’ll have to move out of the property, so if you wanted to keep your home, that won’t be possible anymore.
On top of that, if you want to buy a home again in the future, you may have to wait up to seven years before you can do so.
What should you do instead of opting for foreclosure?
It depends on your specific situation, but legally, there are a few options you may pursue. Bankruptcy could help eliminate other debts that make it hard to pay your mortgage. It might also give you the opportunity to renegotiate your mortgage.
A short sale may allow you to sell your property for less without having to cover the difference, which has the potential to save you thousands of dollars.
Finally, talking to your lender and renegotiating a lower mortgage payment may help you afford your home until the market recovers and it’s possible to sell it. Then, you may be able to wait until you can break even or make a profit.
These are a few things to consider if you are considering an intentional foreclosure. There are serious repercussions that may change your mind.