With the Home market bottoming out there has been lots of talk and media coverage of people simply walking away from their homes and mortgages and letting the banks repossess their homes instead of trying to pay the full inflated price.
Most people look to leave their homes when they owe more money on their mortgage than their homes are worth, but there you actually have many different options if your home is underwater and walking away from it is just one of them. The idea of just walking away from your home without paying the mortgage is called a “strategic default” which means that you have made a willful decision to stop making payments on a property so that you can, hopefully, improve other areas of your personal finances.
Foreclosure Defense Secrets – Home
It’s important to note that simply being underwater or upside down in your mortgage is not usually a strong enough reason to warrant you abandoning your home. We buy things all the time that we could not sell for the same money we bought them for.
Whenever you buy a new car you almost instantly owe much more in car payments than you could ever sell the car for, yet you don’t see hundreds of cars abandoned by the side of the road. People keep their cars and keep making payments on their cars because even though they may not be worth the same amount of money that they originally paid for it, a car actually serves a purpose.
People need cars. Likewise, people need to live in houses no matter what the monetary value of the price is at any single moment.
The question then needs to be asked: When should you walk away from your home?
There is no crystal ball that can give you the right answer, so you’ll need to sit down with your family members and really take a hard look at all the pros and cons of leaving your home and walking away from your mortgage. Remember: this is a personal decision that’s unique to each person and each situation so no one else can really make it for you. Here are some of the factors you should consider when you’re seriously thinking about letting your bank foreclose on your home:
You Can Afford Everything But Your Home Mortgage
If you were to tally up all your monthly expenses and found that your mortgage payment was the one cost that was keeping you from making ends meet then you might want to begin thinking about ways of leaving your home. Now, a mortgage payment is often the largest expense any family has, so simply having a large payment is not usually reason enough to go through a foreclosure. Look at all your other expenses to see what you could cut first. If saving $200 off your monthly expenses for dining out could keep you in your home, then by all means try that first.
You Lose A Job or Have A Loss of Income: If you suddenly find that the money you used to earn is no longer coming in the door, then you’ll probably want to look at all your housing options. Simply losing a job is not a good reason to throw it all away and walk away from your home, but if your income level doesn’t rise back up to a comfortable level then your financial hardships may only get worse before they get better.
Many people who leave their homes to the bank do site a lack of income or a job loss as a major reason for leaving, but it’s usually not the only reason. Losing a job will lead to other problems, some of which are listed below.
You Cannot Modify The Loan: If you’ve tried all the various methods to get a bank to modify your mortgage loan and you are still unsuccessful then you need to begin other options. As the housing crisis continues more and more banks are beginning to understand that if they don’t modify loans and take a small loss then many more people are willing to walk away from their homes and give the banks a much larger loss.
Your Mortgage is Very Deep Underwater: If you bought your home for $250,000 and now it’s worth $240,000 then your mortgage is underwater but it isn’t the end of the world. Markets fluctuate and values rise and fall over time, so little blips here and there are to be expected. You’ll want to consider how much less your home is valued than the money you financed to buy it.
If you took out a loan for $500,000 and now your home is only worth $250,000 or 50% less in just a few years then you may want to consider cutting your losses. There’s no hard and fast rule to follow here, but once you are paying a mortgage that’s 30% or higher than the home’s current value should start to wonder if it’s worth staying in your current home.
You Are Living On Savings: If your financial situation has become so dire that you’re using any sort of long-term savings to meet daily or monthly obligations, then it might be time for you to get out of your mortgage. You should not be using things like retirement savings (IRAs, 401Ks, and others), college savings (529 plans or others) or any other funds you have built up over time for a specific purpose to pay for your housing costs.
Once you begin regularly depleting your life savings just to make it from one month to the next because of your mortgage then you have entered a downward financial spiral that’s difficult to escape from without drastic measure.
You Have Someplace Else To Live: This is a big factor that many people don’t immediately think about when they want to walk away from their mortgages. You need to live someplace even if it isn’t in your own over-priced house. Already have a friend or relative that’s willing to take you in or having a rental property lined up could help you make the decision to give the bank some “jingle mail” by dropping your house keys in an envelope and sending them off.
When you already have a place to move to then one of your largest burdens about leaving your home is taken care of. Moving is stressful, but having no place to go is much, much more stressful.
Financial Stress Outweighs Moral and Emotional Factors: Perhaps you don’t want to leave your home because your family is comfortable there and you feel as though sticking it out is the responsible thing to do. Those are big and very important reasons to stay in your home and keep making mortgage payments. Life is not all about finances.
However, if the stress and pressure of not being able to pay the bills on time because of your large mortgage are beginning to chip away at your family life and overall life pleasure, then you have to take a step back and try to consider what is really important. You have to ask yourself if you and your family would be happier in a smaller rented home with no financial stress or the larger home that you own now with financial stress.
Your Mental and Physical Health Being Affected: Stress can take a toll on us mentally and physically. If you are feeling depressed, constantly frustrated or even suicidal about housing and financial problems then you should seek immediate professional health.
Speaking to a primary care physician about your stress could be the first step. Many can put you in touch with local or state or professional agencies which can offer credit counselling, stress management techniques and even foreclosure advice and help. Again, money isn’t everything and if you overall well-being and general contentment are constantly being affected by mortgage and money woes, then you may need to make some major changes in your life.
Your Neighborhood Has Foreclosures and Abandoned Homes: If others around you have already walked away from their homes then it’s safe to say that your own home value isn’t going to suddenly jump up any time soon. The more foreclosures and abandoned homes that are in your neighbourhood, the greater your chances are of having an underwater mortgage due to slumping home values.
Too many abandoned homes can also be attractive to squatters or petty criminals and can actually make an unsafe situation for you and your family even though you still live and own your home.
Some real estate reporters and media outlets practically recommend walking away from your home when you are paying more than it’s worth. They argue that strategic default is a strategy that companies use all the time: if a company isn’t making money on a subsidiary it will likely close that subsidiary or sell it off at a loss. That’s not always a fair comparison, though.
First, companies don’t sell off subsidiaries the very first day they start losing money. It usually takes a lot of analysis, research and thought to make the decision to sell off or close part of a corporation. You should also devote a lot of time and thought to your decision to walk away from a home.
Second, companies involve lots and lots of people and there is no real emotional attachment for one company to another. And large corporations that sell off or close smaller companies are generally not that poorly affected by the change. Leaving a house behind is much different.
Leaving a house with the keys in the lock is an emotionally charged and potentially devastating situation in some cases. Children may have to move schools, families may have to make other sacrifices in the years to come and once the foreclosure becomes final your credit history will become marred for years into the future. Companies don’t suffer any of those consequences when they close a few money-losing stores or chains.
Essentially, the decision the walk away or stay in a home during mounting financial pressure is a personal one. If you walk away from your home and leave the keys in the door then you could be opening yourself up for many more problems down the line such are foreclosure and a devastated credit score for a number of years.
Staying in a house you can’t afford can also be detrimental as you face a possible bankruptcy or other financial problems. Some people believe that walking away from a home is better because they feel it is better to have money in your pocket and bad credit than to have no money at all.
Remember that you aren’t just leaving behind a house, but you are leaving behind a home. There could be strong feelings and emotions tied to your home which would make leaving it increasingly difficult. Moving to another home is said to be one of the most stressful times in a person’s life and moving out of a home because you can’t afford it will undoubtedly have the potential to be even more painful.
If you’re going to leave the keys in the door and walk away from your home, then be sure to leave your house the right way so that you’ll have some extra money and time to make things less painful for you and your family.
Think long and hard about your decision to walk away from your house. It isn’t an easy decision. If you decide to leave then remember: you can’t go back home again.