You never thought the day would come when you'd be thinking about giving up your home. But if your financial situation has changed for the worse, that is exactly what you may be considering. So how should you go about getting rid of a mortgage that you can't pay?
Home Refinance Can Lower Monthly Payments
Refinancing can get you out of your current mortgage and into one with more affordable payments. Refinancing can be a good option if you can shave at least one percentage point off your mortgage rate, still have at least 20% equity, and you plan to stay in your home long enough to break even on the closing costs.
When comparing mortgage quotes, it's important to look at more than current mortgage rates. When you get a copy of the Good Faith Estimate (GFE), read through it carefully and question any costs that you suspect are junk fees or duplicate fees. Among the fees that you may be able to get your mortgage lender to waive or reduce are courier fees, documentation fees, or overnight delivery fees. Wire transfer and processing fees also may be negotiable.
Sell Your Home
When staying in your home is no longer affordable, you may need to put it on the market. Research the local real estate market carefully to get an idea of what similar homes are going for in your area. Don't assume that you can't sell your home because other properties have been on the market for many months.
If you've already listed your home and just can't seem to get any interest from buyers, consider these options:
- Reduce your price. Many homeowners still have an unrealistic idea of what their homes are worth. Get a comparative analysis of homes that have actually sold in your neighborhood to get a realistic figure.
- Arrange a short sale. Get your mortgage lender to agree to accept less than what you owe on your home when you sell it. You stand a better chance of getting approval for a short sale if you find a buyer who has lined up financing with a mortgage lender or is paying cash. Be sure to get all required documents to your mortgage lender quickly to help move the process along.
- Find a new real estate agent. Find a real estate agent who is actually selling homes in the current housing market. Avoid hiring inexperienced friends or relatives and find someone who can prove that they are selling homes. Don't be fooled by people who claim to be in the "million dollar club." In more expensive housing markets, a selling a million dollars in real estate could translate to one house a year.
Foreclosure Should Be Avoided if Possible
In 2009, 2.8 million U.S. properties had foreclosure filings, according to RealtyTrac. Nevada, Arizona, and Florida were the states with the highest foreclosure rates as a record number of homeowners fell behind on mortgage loans. Housing experts say the foreclosure rate could be even higher in 2010.
Homeowners struggling with mortgages should do whatever they can to avoid foreclosure. A foreclosure filing usually results in negative consequences, including:
- Ruined credit. Expect a foreclosure filing to send your FICO score plummeting by as much as 160 points (more if you have late mortgage payments prior to the foreclosure), according to MSN.
- Difficulty buying another home. A foreclosure filing remains on your credit report for seven years. Even if a few years have passed and you've managed to get your finances under control, expect to have a tough time getting approved for a mortgage.
- Possibility of being targeted by scams. Avoid doing business with companies that come out of nowhere promising to help you save your home. Your best bet is to talk directly with your mortgage servicer to find out if there is any way to save your home.
Finally, walking away from a mortgage yuo can afford just because you don't want to pay it is a bad idea. Not only did you commit to paying it off when you signed all that paperwork at the closing, but strategically defaulting and leaving your home empty hurts the neighbors, too.
Refinancing could help lower your mortgage loan payments. Compare closing costs carefully to get the true cost of doing a home refinance. If you're having trouble selling your home, consider reducing the price or contacting your mortgage lender to arrange a short sale. Avoid foreclosure if you can so you won't ruin your credit score or become a target of scams.