Increasingly, Clearpoint clients who owe substantially more than the value of their home or have trouble keeping up with monthly mortgage payments ask if they should walk away from their mortgage. There is no definite answer. The following considerations can help you make a decision:
Job losses or reduced wages causes financial difficulty for families who are used to a comfortable standard of living or those relying on dual incomes. Many consumers wait until they have no choice but to make drastic changes in their lifestyles. Until clients attain increased income again, often the answer is to make temporary changes in their budgets. In addition, many clients face increased housing expenses due to increasing adjustable rate mortgages and loans with balloon payments. Typically, your mortgage should not exceed 31% of your gross monthly pay. If your mortgage is a higher, and you think it’s no longer affordable, you may benefit from federal programs such as “Making Home Affordable Program,” which allows some homeowners to reduce their monthly payments and interest rates. You may also refinance your loan to obtain a lower monthly payment or get a loan modification.
Walking away from a mortgage can be catastrophic to your credit for years. Negative information accurately reported to the credit bureaus will stay in your credit reports for 7-10 years, making it difficult to obtain credit. Many clients complain that their credit limits were reduced and they can’t obtain new credit or pass credit checks required to rent an apartment. Poor credit can also impede efforts at obtaining employment.
Many homeowners think that once they walk away from their home, that’s the end of their financial obligation and, aside from the impact to their credit, once the foreclosure has gone through and the house is sold, they walk away debt free. This, however, is not always true. The consumer may still be responsible for the lender’s loss due to the difference in the sale price of the foreclosed home and the amount that was owed on the mortgage. The mortgage company may seek to collect on the difference and could seek legal action against the mortgage. Mortgage holders in certain states with no private mortgage insurance may be responsible for the difference in how much was owed and the sales price. Consumers who have private mortgage insurance, which is typically required with loans not requiring a large down payment, may be covered and may not have to make payments on the difference.
If a homeowner expects housing values in their area to bounce bank, maintaining a mortgage on a home that’s appraised for less than is owed may be a good decision. However, if homeowners owe substantially more that the current values of their homes and do not expect their local housing markets to improve, they may want to consider other options.
The decision to walk away or stay in a home is complex. Every situation is unique. We will help you understand your options. Let us help you stay in your home or to leave financially intact. We will discuss federal assistance programs, lenders’ loan modification programs, or programs which help with your relocation costs, granted you leave the home in good condition. If you’re considering whether or not to walk away, contact us at 1.800.750.2227 (CCCS) to schedule a free Foreclosure Prevention Counseling session. Clearpoint in a U.S. Department of Housing and Urban Development (HUD)-approved housing counseling agency.