You are behind on your mortgage payments and are struggling to keep up with your credit card and car payments. Food and gas have gone up in price and your recent raise at work was a paltry 2% — moreover, your job may be outsourced to China or India in 2009, putting additional pressure on you.
To top it all off, your mortgage rate will reset this summer adding an additional $300 to your monthly expenses. Worse, you cannot refinance at a favorable rate because your creditworthiness has slipped due to your late payments.
Does this scenario sound far-fetched? Unfortunately, it isn’t — at least for some cash-strapped consumers. Indeed, although mortgage rates have dropped and are near historic lows, some consumers are finding that they cannot refinance, putting themselves into a precarious position: should they simply walk away from their homes?
Just Walk Away, Renee
One website is encouraging consumers to walk away, but I’m not going to link to them. There are some serious consequences to abandoning your financial obligations, long term headaches you should know about. Let’s take a look at the consequences and what some options are available for you.
Consequence Of Leaving Your Home Behind
Of course, you can simply pack up your goods and leave your home. But, if you do then you’ll quickly discover:
Your creditworthiness will nosedive. If you walk away, your home will be foreclosed and your credit will plummet. Getting a new job, renting an apartment, or doing almost any other activity which requires someone to access your credit report will become very difficult. If you think that you have problems now, just wait.
Your other creditors will take action. Creditors share information about you with each other. If you walk away from your home, then your credit cards will likely reset to a default rate and you’ll be ineligible for new credit, perhaps for many years.
Smart Action You Can Take
If you aren’t able to refinance your home and you cannot afford future payments, then the following should be considered:
List Your Home. Seek out the services of a real estate agent who can help you sell your home. You can explain your plight to her, but request that your financial situation not be made known to potential buyers. You don’t want a “fire sale” for your home, you would prefer to get out from under this obligation unscathed.
Sell Your Home. Last week, I made mention of one option for getting out of your home — short selling. In summation, short selling allows you to find a buyer who offers to buy your home for less money than what you owe on your mortgage. Although this is something mortgage brokers hate (and aren’t required to accept) there are certain situations where a short sell makes sense. Please read that article for more information.
Do Not Act In Haste
Perhaps the best advice for you is to not act in haste. Take care that you don’t fall prey to scams where someone will offer to lend you money for the short term, but for a high rate. There are people who are looking to entice cash-strapped homeowners into taking out high-rate second mortgages which can only worsen your problems.
Above all else, talk with your current mortgage lender and see what can be worked out. Get help through a credit counselor and only consider personal bankruptcy as a last resort.
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