Have you made the decision to pack up and walk away from your residence? Maybe you have already moved out and thinking about letting the bank take it away. In this article, we examine what happens if you stop paying your mortgage and walk away . Additionally, we cover some viable options if that you can take to put yourself in a better situation.
You’re not alone!
There are many people who have been where you are and the first thing you should know is that its okay! This affects thousands of people across the country every year. The pandemic affected everyone’ housing situation whether they were renters or owners.
According to national foreclosure statistics, in 2020, the foreclosure rate in the United States was at 1.16%, which equates to about 214,323 households. In 2010, after the mortgage crisis, we saw the peak of the foreclosure rates with a rate of 2.23%. Rates have been in a steady decline since then. Following the mortgage crisis, lenders have strict guidelines for prospective homebuyers, avoiding unnecessary foreclosure. Even with the COVID pandemic, foreclosure numbers are nowhere near that of the mid-2000s.
How does this affect your credit?
A home foreclosure with undoubtedly affect your credit for many years. But for some, credit score is a low priority compared to the hardships at hand. So, its good to know how it will affect your credit in the long run.
According to Experian, a foreclosure will appear on your credit within a month or two after the initial foreclosure process has started. It will stay on your credit for several years with the start date of the first mortgage late that began the foreclosure process. A missed payment on your home will negatively affect your credit more than any other late. It takes about four missed payments for your home to start the foreclosure process (120 days). After the several year mark, the foreclosure will fall off. If not, you can always file a dispute on your credit and it will be corrected.
Having to walk away from your home due to an unforeseen hardship, leaves you with the next biggest question: where are you going to go and how do you rent with a foreclosure? You can probably stay with a relative or a friend but that may only last for a limited amount of time. You will need a place to call your own, whether that be an apartment or house. Will you be able to apply with a foreclosure on your record? The answer to this is yes and no, depends on who is renting the property.
Some individual landlords may be willing to overlook a mortgage foreclosure. Most landlords know that when people are renting the property, they may not have the best credit or be willing to stay in the home for a long period of time. Individual landlords will have more discretion in this process. The best thing for you to do is to explain the situation to them and let them know why you will be a great tenant for them. Some landlords may not know happens if you stop paying your mortgage and walk away and why some homeowners choose to do this. You can even go as far as paying for a higher deposit to put their mind at ease when handing you over the keys.
Other larger scale apartment buildings and landlords may not be so lenient. Lot of these larger scale operations have many applicants that apply to their business and will want tenants with unblemished records.
Find a cosigner. Thegood news is that many places will allow you to have a cosigner to get you in the door. Be careful with this, if you have not repaired your situation what caused you to stop paying your mortgage and walk away, then you may be hurting your cosigner’s credit in the long run.
You have options
With hardships people faced during the pandemic, a lot of homeowners are taking advantage of forbearance programs. Currently, there are 1.6 million in forbearance. This number is on a steady decline due to these programs being lifted, but banks are more than willing to work with you. Check with your lender to see what they offer.
Mortgage Rates are sitting at an all-time low, hovering between 2.86-2.88%. Additionally, with the value of homes being at an all-time high, homeowners can refinance to a lower rate and taking out extra cash to pay off debt. Though, if you suffered a job loss or an income hardship, then this may not even be an option.
A loan modification can be a great option for homeowners who have the following:
- Do not meet the guidelines for a refinance
- Falling behind on your mortgage payments
- Have a new long-term hardship
The best part of a loan modification is that you can stay in your home, relieve your monthly mortgage payments, and it takes a lot less of a hit on your credit. To get a process like this started, you will need to contact your lender to go over your options.
- Cash Buyer/Investor
Have you ever been exiting the freeway and see those we buy houses signs? These are cash buyers who are willing to give you a large cash offer for your property. They typically purchase ugly houses or homes that are in need for repair. They then fix up the property and then sell or rent the property. If your home is in need for some updates this can be a great option for you. Not only will you be able to get a large cash offer for your property, but you won’t have to find out what happens if you stop paying your mortgage and walk away.
Make sure these companies are local, check out their website and reviews. There are a lot of these companies so make sure you vet them well. Here at Anderson Home Paths, we work in the greater metro Detroit area and if you think this would be an option for you, then give us a call!