Everyone is well aware that we are in historic times for mortgages. From rates being so low to values being so low. The problem facing many homeowners today is the fact that a home you bought in recent years is now worth significantly less than you paid for it. You are upside down on equity. You are making a mortgage payment higher than you would pay rent, on a house that probably will not catch up in value for at least another 5-10 years. This is happening all over the US – but specifically here in AZ we are hard hit. Values have dropped so significantly this is a problem that many homeowners are facing and trying to decide what to do now. This scenario has sparked a rise in what is known as strategic defaults: walking away from your home that you can afford the payments on, you just don’t want to because you are so far upside down in equity. I just wanted to take a moment to speak to you from the side of mortgage lending recourse with such an action. Fannie Mae recently changed their guidelines to make people who strategically default harder to get future money. You will not be able to get financing backed by fannie mae for at least 7 years preceding a strategic default. Not to underscore the credit score ramifications of a foreclosure, your credit score will be significantly impacted by a foreclosure that can limit your ability to get new credit of any kind in the immediate time frame as well.
There are other options available to homeowners facing negative equity situations. A possible short sale or taking advantage of the HARP loan refinance program that allows you to refinance your first mortgage up to 125% of the value (if you have a 2nd mortgage there is no combined to value limit). If you are a homeowner in this situation and not sure what to do, give us a call – we can help you understand the ramifications in regards to your credit limitations and long term and short term effects of each scenarios.
