We've been talking with a lot of home owners lately who have tried to do a loan modification. Some were denied and out of frustration have decided to let their house go to foreclosure. Many people make emotional decisions without seriously considering their long term effects.
In the situation where a homeowner has been denied and they let it go to foreclsoure, can they or should they consider, other options? Yes! Before letting the house go to foreclosure consider what's the impact on my credit? Can a "Short Sale" help me?
A foreclosure will remain on your credit report for seven to ten years. It usually takes 5 years before new mortgages maybe obtained. With a short sale, however, you may be able to purchase a new home within 2 years assuming you keep other payments current and no 60 day+ late payments. A "Foreclosure" on your credit will impact your ability to get new loans (such as a car, new credit cards, or a loan for an emergency) or even employment.
Do everything you can to avoid foreclosure. A short sale may be an option highly worth considering. Some of the benefits of a short sale include:
Less impact to your credit score. Lower the credit score translates into higher interest rates which means higher payments and the items you purchase will cost more.
May be able to purchase a home in 2 years vs. 5 years or longer. Under Fannie Mae guidelines, seller's may be eligible to buy another home in 2 years instead of 5 years. Possibly sooner if you don't have a 60-day+ late pay.
Be Pro-Active vs. Reactive. You take control of your situation rather than the Bank. Why pay more for future higher priced items with credit when you don't have to. A short sale has less impact on your credit score.
We recommend home owners consider the financial implications of letting the house go to foreclosure before making an emotional decision to do so and might regret down the road. Perhaps a Short Sale may be a wise decision.
Consult a professional tax advisor or attorney for advice. For more information or a FREE, no obligation, consultation, contact us at (916) 956-4912