For those that are buried in mortgage debt and owe far more on their house than it is worth, walking away might seem like the only rational option. And for many, it has been the option of choice, as indicated by the rising percentage of “strategic defaults”.
If you’re considering walking away, it is important to understand the consequences ahead of time. According to a CNN article, homeowners that intentionally walk away could find it more difficult to purchase a home for far longer afterwards than those who were foreclosed on for cause:
While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.
“It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association.
Even if your credit score has recovered after two to five years, underwriters may still take into consideration the circumstances surrounding the foreclosure and still prevent you from getting a loan:
“Credit scores are only one component of a complete credit decision,” Brinkmann said. “[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage.”
But future underwriters will scrutinize their records very closely, and if they find no precipitating factors leading to the defaults — no job loss, no health issues –the repaired credit score won’t overshadow the black mark of a walkaway.
“If you made a strategic decision to default on paying your mortgage, it will work against you,” said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.
Merrell, who teaches underwriting, said banks are looking at several factors in determining whether to grant mortgages: the amount of money borrowers have in the bank; employment histories; payment history.
However, banks may be far more lenient if the default resulted from factors somewhat beyond the borrower’s control, such as from local economic problems. “They’ll give you more consideration if it’s job related,” he said. But, he added, banks look at strategic defaults “very negatively.”
If you are considering walking away, talk to us first! There may be a better option in the form of a short sale. A short sale will fix the problem of too much mortgage debt and you can protect your credit and your reputation with the banks as well.
-CH
Need to sell a house? We buy houses for cash, even if you owe more than it’s worth, with no commissions or fees! Give us a call at (714) 583-9004 or fill in the web form on our home page and we’ll get back to you within 24 hours!
