Joined: 02 Nov 2013 Posts: 1 Location: Fairhope, AL
Posted: Sat Nov 02, 2013 2:31 pm Post subject: Can foreclosure be a good thing?
When the housing bubble popped several years ago, many homeowners were left a lower income and with a home that was worth less than they still owed for it. When faced with this difficult situation, many were forced into foreclosure. Others who had the means to continue paying their mortgage chose foreclosure rather than continuing payments on a home that was suddenly worth much less. Today, the value of homes is on the rise and the housing crisis is past, but there are still many who are near foreclosure or who are considering foreclosure to get out of an underwater mortgage. For these individuals, it’s critical that they understand the long term consequences of foreclosure.
Underwater mortgages
At the peak of the housing bubble, house prices were at a premium and home builders were frantically creating entire neighborhoods. In some areas, there were more homes than there were buyers and many of the homes in these new neighborhoods remained vacant. As a result, the value of homes that were purchased dropped significantly below the cost that the homeowners paid. The problem with these underwater mortgages is that it is very difficult for homeowners to sell their properties, and if they are able to, it is only by taking a huge loss on their investment.
Foreclosure’s long term consequences
When stuck owning a home that is worth less than what was paid for it, it can be tempting for homeowners to simply walk away and stop paying the mortgage. This of course leads to foreclosure. The problem with this course of action is that foreclosure is not without its consequences. Foreclosure will remain on your credit score for seven years. During that time you can expect to have a much harder time borrowing money. If you are approved for a loan it will be at a higher interest rate. Any new credit cards you apply for will have a lower credit limit. Needless to say it will probably be several years before you recover financially and can purchase another home.
Things to consider
While it may seem that foreclosure is the only option, that isn’t always the case. There are a number of things that homeowners can do to avoid foreclosure such as agreeing on a short sale where the property is sold for less than is still owed. Remember that while foreclosure is far from ideal, in some instances it may be the best choice. A consultation with a foreclosure attorney will help you to explore the various options that might be best for your situation.
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