Posted By PremierLots on November 4, 2009
We get asked this all time, but the truth is no one but an attorney should give you council on whether or not it is in your best interest to continue to pay your mortgage payments. That said, there are advantages and disadvantages to both scenarios when trying to strategically accomplish either a loan modification or short sale.
There are concrete facts surrounding the topic: should I continue to make my mortgage payments? It would be wise for anyone struggling to afford their mortgage to look at the facts. After reviewing the facts/consequences of paying or not paying you’ll be able to make an informed decision as to what’s best for your financial situation.
The fact is, you can perform a loan modification or a short sale without falling behind on your payments.
Questions that this raises:
- If I continue to make my payments what are the advantages vs. disadvantages?
Answer:
Advantages:
- If you think that a loan modification is your long term solution, your credit will not be impacted by missing payment s while waiting to see if you are eligible to make this happen.
- Qualify to Buy a New Home. Fannie Mae guidelines, issued in August of 2008, say a borrower may immediately buy another home after a short sale if the borrower was never delinquent, complies with its “excessive prior mortgage delinquency policy,” and is not obligated to repay the short sale lender, including a deficiency judgment.
- Protect Credit – Keeping your mortgage current also helps your credit rating because your credit report will not reflect any late payments. Realize that a lender may, however, report your short sale as a Credit Score Factor Code #22, which will still somewhat drop your FICO.
- Peace of Mind. Not falling behind on your payments makes it easier for some sellers to deal with a short sale because the stigma of being delinquent is absent, and they sleep better at night.
- Cancel Without Penalty. If your home does not sell or a lender refuses to accept an offer from your short sale buyer, in California, for example, you are free to cancel the listing and keep your home without liability. This can vary from state to state and you will want to check with the brokerage with whom you have a listing agreement with. Marketing expenses may incur.
- Are you prepared to face a foreclosure? Not all short sales are guaranteed and not all lenders will agree to have your home sold short of what is owed. It is a good idea to find out if your lender will agree to a short sale before missing payments, unless there’s no other alternative.
Disadvantages of continuing to pay:
Some sellers are dealing with extreme financial hardship and don’t have the option of deciding whether to continue making mortgage payments. Other sellers deliberately stop paying.
-More Motivation for Banks to Accept Short Sales . Although it is not necessary to be in default before a bank will consider a short sale, the files that get priority are those in default.
-Lenders Might Not Obligate Repayment . If a borrower is facing a true hardship and has no assets nor means of making a mortgage payment, the lender is unlikely to try to force the borrower to pay back any of it. It does not mean a lender is not entitled to a deficiency judgment, if circumstances warrant.
- Acquire Funds to Move. It stands to reason that if you’re not paying the bank, money that would ordinarily be allocated toward that expense may instead be used to pay first, last and a security deposit on a rental.
2. What could I be doing with a couple months worth of mortgage payments? Could that money be better spent?
Answer:
You need to think about the long term reality of your situation. If you have to scrape by just to afford your mortgage, this mortgage is not right for you. If you could re-direct a couple of monthly payments towards reshaping your financial future, it may make more financial sense. Remember, it is free to have your home negotiated by our short sale negotiators; however this is not the case to have your loan modified or to have a debt negotiation specialist work with you to settle your outstanding consumer debt.
Services available to help you reshape your finances are:
-Loan Modification Specialist
- Debt negotiator fees. – They are specialists who help negotiate your post short sale deficiencies, consolidate all of your other unsecured debts & help repair your credit overall.
Remember, if you find yourself needing your mortgage money to pay for daily necessities such as: food, gas, etc. then your mortgage is not right for you.
3. Am I really going to be able to make this mortgage work for me?
Answer: Think about the long term consequences of whatever you’re doing. If you have you have a forbearance agreement with your lender who has agreed to temporarily lower your monthly payments, is this truly going to resolve your mortgage situation? If you’ve had a loss in income, increased monthly bills or any other hindrance to your ability to make that monthly mortgage payment, a forbearance agreement is not going to resolve the issue. If you can have your loan modified, until you could make things work or even permanently, would this help? Furthermore, if you were to step away from the property and do a short sale in order to find more affordable housing would this be better? These are all things that no one but YOU can decide and all very important things to consider before moving ahead with any decision.
4. How will this affect my credit score if I do stop paying?
ANSWER:
Short Sale- 200-300 point reduction on your FICO score depending on your borrower and an inability to obtain a mortgage for at least 24 months.
Late payments- 30-60 day late payments, if considered an ‘isolated occurrence’ does not cause long term damage to your credit. 90-120+ day late payments however can drop your credit score for up to approximately seven years.
Collections (post short sale deficiencies) & debt settlement- Your score will suffer from both, but with debt settlement you’ll eventually repay your debt- which helps to restore your credit.
If you leave your debt in collections they will continue to report that you are in default of installment payments, etc. and they can hinder your credit for years. It is better to settle your debt and move on.
To summarize, in regards to a loan modification, there are certain requirements that you’ll need to meet, but in general you may qualify for a loan modification (regardless of whether you are behind or current with payments) if:
- You occupy your house as your primary residence;
- Your monthly mortgage payment is greater than 31% of your monthly gross income
- Your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.
In regards to a short sale, if you fall behind on your mortgage and want to avoid a foreclosure on your credit score, you will want to perform a short sale. While our negotiation service is free to you, there are other costs involved that you will want to be prepared for, such as: deficiency judgments, debt negotiation services, etc.)
TO FIND OUT HOW WE CAN HELP YOU MOVE FORWARD WITH YOUR SHORT SALE PROPERTY PLEASE CLICK ON THE SHORT SALE ANALYSIS PAGE ON THE TOP OF OUR WEBSITE AND SUBMIT YOUR FORM.
Whether or not you decide to continue to make your payments, you now at least have some foundational truths regarding the consequences of both actions. If your mortgage isn’t working for you it could be best to re-direct a few monthly mortgage payments towards rebuilding your future financial situation. If you can make your mortgage work with a refinance or modification, you’ve found a mortgage that is truly affordable for you and your family.
Best of luck to you all- take care.
Category: Foreclosures, Judgements, Non-judicial Foreclosure, Short Sales, Washington State Law, deficiency judgments, mortgage payments, payments |
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