How You Default on Your Mortgage may affect Your Future
Foreclosing on your home may get you out of a deeply underwater mortgage, but there are some disadvantages. Your credit score is shot and it becomes more difficult if not impossible at times to obtain credit. It takes more than on-time bill payment to raise your FICO score and eventually purchase a new home. The way you default on your mortgage may depend on how long you must wait to purchase a new residence. Generally, it takes two to five years to purchase a new home for people who defaulted becomes of economic hardship such as job loss or divorce. However, walk-away defaulters face double the time. Jay Brinkmann, chief economist for the Mortgage Bankers Association, said it could take walk-aways well over seven or eight years before they are able to obtain a mortgage and purchase a home again. Brinkmann states that credit scores are only one component in the overall credit decision. A repaired credit score is highly unlikely to remove the blemish of a walk-away default because these credit scores are not good indicators of a person’s willingness to continue to pay their mortgage.
Strategic decisions to default will work against you, claims Bill Merrell of the National Association of Review Appraiser and Mortgage Underwriters. Banks are far more lenient on a person who defaulted because of reasons beyond his or her control. However, getting a loan is not impossible. Banks want to make interest payments so gambling with a walk-away might be worth the risk to banks. But, lenders may require more money up front—some as much as 30% or more down—and charge higher interest rates than those with similar credit scores. To read more on this topic see Walk-away defaulters seen in negative light by banks.
Defaulting on your mortgage and foreclosing your home is never an easy decision to make. The reasons for default play a critical role in your future purchases and credit line. Contact a Foreclosure and Bankruptcy Attorney to discuss your situation and the best available routes for you to pursue.
Greg Gilbert
Keith Maynard
