Walking Away from Your Mortgage

If the value of your home is significantly less than the amount you still owe on your mortgage, you may be wondering if walking away from your mortgage is a viable option. Consumers today are increasingly receptive to the idea of abandoning their homes and defaulting on their mortgages to avoid remaining tied to a losing investment. In fact, nearly seventeen percent of participants in a recent survey stated that they would abandon a mortgage loan if the home’s value dropped to half of the mortgage balance.

Although walking away from a mortgage loan might appear "strategic," is it really a good idea? While consumers may think that abandoning a mortgage is the best choice for getting out of a failing investment, they often do not understand the sever consequence that come with making this decision.

A mortgage loan default will have a dramatic impact on your credit score. When your mortgage company reports the default to the three major credit bureaus, you can expect your credit score to drop by at least 100 points. If you have worked hard to maintain a good credit score, a "strategic default" will ruin the rewards of your diligent efforts. Even worse, the default will stay on your credit report for at least seven years.

It is important to understand that a mortgage default is viewed much more negatively than other types of credit items. A potential lender will likely overlook a few missed credit card payments, but will not likely forgive a mortgage default, even if your credit history is otherwise clean. Defaults on home mortgages typically carry about the same weight as bankruptcies in the eyes of credit lenders.
A "strategic default" will make it very difficult for you to obtain a car loan. If you find yourself needing a new vehicle after walking away from your mortgage, you will likely be stuck buying a car from a "buy here, pay here" dealership – these businesses usually charge very high interest rates, and are rather unforgiving when it comes to late payments. Purchasing from a "buy here, pay here" lot is a hassle that is best avoided if at all possible.

Walking away from your mortgage will also make obtaining an unsecured credit card challenging, if not impossible. If you need a credit card for traveling, online payments, or simply convenience, you may have to obtain a secured card. There are three significant drawbacks to secured cards: First, you can only spend the amount you have prepaid on the card; second, many secured card lenders charge high maintenance and transaction fees; and third, on-time payments are typically not reported to credit bureaus, so they won’t help raise your credit score.

Difficulty obtaining credit is not the only problem that comes with walking away from your mortgage. Buying a new home will be nearly impossible as long as the default remains on your credit record. Even if you plan to rent, keep in mind that most landlords and rental agencies check credit reports when evaluating prospective tenants. A mortgage default can keep you from securing a desirable apartment or rental home.

Even finding a job can be a difficult task after you have defaulted on a home mortgage. An increasing number of employers use credit reports to assess prospective employees. Although your current employer can’t fire you for walking away from your mortgage, a new employer can deny you a position, or retract a job offer, if the default is discovered.

For these reasons, a "strategic default" isn’t terribly strategic after all, especially if you have the financial means to make your mortgage payments. It will likely put you in a far worse position than if you simply wait for the housing market to recover before considering a move.

 

More and more people in America are finding it more and more difficult to make their monthly mortgage payments. This is why so many people are losing their homes to foreclosure. With the economy on a downward spiral, it can often seem as if a family has no choice but to leave their home. However, thanks to the government home loan modification program, there is hope for families that want to keep their homes but may be experiencing financial struggles. The following includes some basic information about the government home loan modification program, eligibility, and how you might find more information about whether or not you qualify for it.

The government home loan modification program is one that is focused on helping homeowners save their properties from foreclosures. Basically, when a person can no longer make his or her monthly mortgage payments, the bank is forced to sometimes take back this property in the hopes of selling it to someone else. This has a negative effect on both parties: the bank loses money because it is not receiving consistent payment on the loan, and the individual and his or her family lose their home.

Government home loan modification is part of a program that is focused on making home ownership more accessible and affordable for Americans. To do this, the program takes government subsides and combines them with incentives for lenders. This encourages lenders to help people find better rates so that monthly payments are made more affordable and reasonable. In the process, principal amounts and interest rates lower so that people can keep their homes and so that lenders and services receive necessary cash flow.
Incentives are given to lenders so that they are more likely to modify or change home loans so that they match 31% of the person’s monthly gross income. Government officials project that this program will stop millions of foreclosures and could give the economy the boost it needs to succeed. Thus, this is a win-win situation for lenders and borrowers alike as well as for the general country.

You may qualify for this program if your home is your primary residence, if you owe $729,750 or less on your mortgage, if you invested in this mortgage before January 1, 2009, and if you have had trouble making your monthly payments. This last item may be because of a loss of job or reduction in income or if there has been an increase in your expenses because of something like illness.
If you want to apply for this program, you should do two things. First, take the time to call local lenders to see if they will work with you. Often, you can find this information out both in the local newspaper and online. Additionally, take the time to visit the government’s website. Here, you can answer a series of questions to ensure you qualify and can then find helpful information

Fannie Mae and Freddie Mac are offering financing incentives for buyers of foreclosed homes that Fannie and Freddie own.

The economy is starting to turn around a little bit, and much of the credit for that can be given to the housing market. The government has stepped in to an extent to provide help for people and their failing mortgages, and this has created a much more stable real estate market at current standing. These days, the government is looking to do more to help stimulate the housing market and provide incentives for people who want to purchase foreclosed homes. It was announced this week that Fannie Mae and Freddie Mac were providing these benefits to buyers who wanted to close on foreclosed homes that were owned by the two agencies.

The biggest issue for home buyers in today’s market is that the costs of buying a home are usually much more than advertised. Between all of the mortgage brokers, the actual cost of the home, and everything that goes along with financing a new home, things can really add up if you aren’t careful. These are things that prospective home buyers have to budget for and in some cases it can lead to them not being able to afford a certain home. What Freddie Mac and Fannie Mae are interested in doing is cutting down the price of one of the most expensive "little" fees associated with home buying.

The concentration is on cutting down closing costs. These are the sometimes substantial costs associated with closing on a home, and it comes after all of the other financing and fees have been processed. Freddie Mac is currently running what is known as the "SmartBuy" program, and it’s designed to directly pass along some savings to people who will buy foreclosed homes from the two government-controlled companies. This has been very necessary, seeing as Freddie Mac and Fannie Mae have had to foreclose on thousands of homes over the last few years. Getting these homes back on the market and sold to good buyers has been a challenge, and this is intended to help that process along.

The Freddie Mac SmartBuy program is pretty simple, and it’s certainly worth it for buyers who are interested in foreclosed property. It provides an offer of as much as 3.5% of a foreclosed home’s eventual selling price as a bonus back to sellers in order to cover their closing costs. The actual amount that buyers will receive back depends upon the home they are buying and how much their closing costs end up being, but the fact remains that this can be a substantial boost to people who might be cutting it a little bit close with their new mortgage.

This program has been running since June, and there is not a whole lot of time left for buyers to take advantage of the government help. Buyers who are interested in taking advantage of this offer have to apply through the HomeSteps program and they have to do so by October 30th in order to qualify. These are specially chosen homes by the lender and they provide two year warranties on a host of things.

One of the challenges facing potential buyers right now is that there are very few homes available in prime areas that apply for this offer. Freddie Mac is known for not accepting high mortgages – those above $400,000 – so it follows that places like New York City would not feature many of these homes. As it looks right now, this is a good fit for those people who are looking for homes in more rural areas. With the amount of money that they can save on their closing costs, it might be well worth it to consider a home in a less than prime territory.

Fannie Mae has their own variation of the program, and their homes have to be selected through the HomePath program. While the Freddie Mac version of helping buyers is quite ambitious in its own right, many are saying that Fannie Mae’s program might be an even better one. They are current providing loans on these homes for any buyer who can make a qualifying 3% down payment. In addition, they are not requiring these people to get private mortgage insurance (P.M.I.), which can be a significant cost. Likewise, they will provide some help to buyers with their closing costs.

Fannie Mae’s assistance to potential home buyers also includes a program that offers up to a 15% discount on foreclosed homes for those who live in areas that have been hammered by the economic downturn. They have also been working with companies that focus their efforts of rehabilitating foreclosed properties in order to provide more families with excellent housing options.