You have gotten in over your head with your mortgage for reasons out of your control (medical issues, job loss, life event) and need to get out from under your monthly payment.
Should you just walk away from your house?
This is an issue that more and more home owners are facing. It is important that you understand the difference between Foreclosure (the bank taking ownership of you home due to missed payments) and Short Sale (selling your home on the open market for market value less than what you owe on your mortgage).
If you go the Foreclosure route, you do nothing except stop paying your mortgage. Eventually, you will be evicted. It won't feel that simple, but in essence that is what will happen.
If you go the Short Sale route, you need to contact a listing agent (preferably one with Short Sale experience) and list your home for sale just as you would under any other circumstances. You will offer the home at market value with little regard for what you paid or how much you owe. In order to sell your home, any contract you get will have to be approved by the lender(s) who are owed money on your house. It is a very complex transaction with many different impacts to the seller (both short and long term). You need to make sure you understand the process--from beginning to end.
One of the concerns that homeowners have is how to recover from such a devastating act.
Michelle Singletary, in today's personal finance column in the Washington Post, addresses the impact to your consumer credit score by doing either of these things. She also mentions 'Deed in Lieu' as an option (walking away and returning the deed for the home to the bank that holds the mortgage); my personal experience is that most banks are not currently accepting that as an option (I would love to hear if other agents are seeing something different). Read her article,What’s worse for credit score — foreclosure, short sale or deed in lieu? for more information about the impacts of each of these actions.
I find that the best consumers are those who understand exactly what they are getting into by taking an action. Don't bury your head in the sand; make sure that you understand exactly what you are doing and why you are doing it.
It is your money, your credit, and your life--be smart about it and make thoughtful choices.
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