There is too much information but too little understanding of mortgage and the effects of walking away from it. This has been creating more confusion than clarity. Walking away from a mortgage may result in foreclosure or a short sale. The following is a quick primer to help everyone understand the effects of walking away from a mortgage.
What will happen if you walk away from a mortgage?
* The main effect when there is a short selling or foreclosure will be that your credit score will take a beating. Due to short selling or foreclosure, you may not be able to apply for a new home loan for some time.
In addition to losing your credit score, you may be refused credit cards or the credit card companies may choose to lower your credit limits. You may not be able to get finances for buying vehicles or furniture and you may not get any revolving account also.
* You may face deficiency risks if you walk away from your mortgage. This means that the lender concerned may try to recover the difference between what you owe him and the proceeds of the short sale or foreclosure by suing you. Anti-deficiency protection is not prevalent in all the states of the US. Even if such a law is prevalent in the state, you can’t assume that you are free from troubles. Deficiency risk arises from many factors. The main factors can be summed up as:
- A second mortgage on the property,
- If you have availed of refinancing,
- If your mortgage is the one that you entered into when you initially purchased the property
It is wrong to assume that you can walk away scot-free from your mortgage without considering the aspect of deficiency risk. Therefore, you should always seek legal advice from experts like a competent real estate lawyer in this regard.
* If you decide to walk away from your mortgage, there are chances of some tax liability also. Especially, if the mortgage is on a second home or an investment property, chances of tax liability are more and hence, it is better you consult a taxation expert.
* The main consequence of walking away from your mortgage is that you will incur costs for moving your household items to a new home. You may move into a rented home and this may be painful because you have all along been living in your own house.
When you look for a rented apartment or house, you may have to explain your situation including your defaulting on mortgage payments to your new landlord. You may have to look for new schools for your kids; you and your family members will start living in a new surrounding and your community and social activities in the old area may come to an abrupt end.
* There may be career-wise and professional problems also if you walk away from your mortgage. Your reputation may be hit in your workplace.
So, you should take into account all these aspects also before deciding to walk away from your mortgage.
Mortgages: Things to Avoid
Taking out a loan can be a potential minefield. If it’s not done properly, you could end up losing a lot of money, run yourself into unimaginable debt and even potentially go bankrupt! Before signing on the dotted line, there are a number of important considerations to take into account. Here are some useful tips to steer you in the right direction and to help you avoid some common mortgage pitfalls.
Don’t be clueless about your credit status
This is a big one. All too often, people apply for a mortgage and just assume that they’ll pass the credit test. Seemingly small things can put black marks on your credit score, such as continuous late rental payments.
Even if you know you have a healthy credit score, it’s still wise to check your status from time to time, mainly due to identity theft. It’s becoming increasingly common for loans to be taken out using false identities, and if that identity is yours, you could be in for a nasty surprise during your mortgage application!
Don’t go against your gut
If you know that you won’t be able to make the payments, don’t do it. Don’t listen to an overly eager mortgage broker telling you that you can afford it when you know you can’t. According to Quicken Loans, this becomes problematic when you start house hunting, as estate agents usually start at the maximum that you can afford.
Although it may be tempting to go for a three bedroom double story house in the leafy suburbs, it be might be better to keep looking. It’s also important to realize that payments don’t only involve interest rates. You will also have to factor in taxes and insurance costs.
Don’t make big purchases
While you’re in the application process, don’t decide to buy a car, or to deck out your new home with furnishings. According to mortgage broker Mark Zachary, this will only increase your debt during the mortgage process, and it won’t look good on your credit status.
It will also leave you with less down payment money, and it will add to your monthly expenses. Rather wait for everything to be approved and get the house first – then you can focus on other purchases.
It’s also important to understand your loan before making any financial commitments, such as what kind of interest rate you’ll have, and what you qualify for. Once you have the mortgage, whatever you do, don’t miss any payments! The penalties are much higher than missed rental payments and it’s bad for your credit.
These suggestions should help you to avoid common mistakes in the mortgage process. By following this advice, you can find your dream home without any hassles.
Don’t Get Caught Up In These Deadly Mortgage Traps
Buying a home is both an exciting and life-changing experience. It’s not uncommon to find yourself feeling the pressure and wanting to rush through the process so you can finally have the home of your dreams.
The problem with doing so is you may find yourself skimping on crucial parts of the transaction, possibly not reading the fine print or getting into unexpectedly sticky situations.
While it’s great to be focused on that finish line, sometimes you must take a step back and view the entire picture. We have a few tips that should help you keep your head on the task at hand and out of the clouds.
Be Careful What You Wish For
When shopping around for the right home, knowing how much you have to spend is a must. Many lenders will try to pressure you into rounding up your income or slightly improving your credit score on paper in order to get a better deal. While doing so may seem innocent enough, you could be unwittingly placing yourself in a home that is above your budget.
This is especially dangerous if you have selected a variable rate mortgage. Unlike fixed-rate mortgages, variable rates are going to increase after a few years into the life of your loan. When this happens, if you haven’t prepared yourself financially, this could lead to being forced to sell or ending up in a foreclosure situation.
Even when your heart is set on a certain property, be sure to do your research and speak with a financial advisor to make the most educated decision. It is very important that you do not sign any paperwork that has not been completely filled out.
You want to re-read everything, verifying you completely understand, before adding your name to the dotted line so you are fully aware of any fees, taxes, and changes that may have been made to your previous agreements. There is a lot that goes into purchasing a home and with all the information being thrown your way; it can be easy to bypass important data if you aren’t careful.
Keep an Eye Out for Hidden Fees and Changes
A variable rate isn’t the only thing related to a mortgage that can change the price you pay. Depending on how you plan on paying your home off, you could find yourself spending more cash out of pocket in the long run. An example of this is the charges many lenders add to your bill when you choose to make payments in advance.
These lenders want you to stick with the 15 or 30-year mortgage you have agreed on so they can continue to make a specified amount off the deal. If you are looking for some wiggle room and the luxury of being able to place additional funds towards your principal or would simply like to pay towards the next month’s bill when funds allow, then make sure your lender is a company that is willing to give you the option.
Warning Signs to Look for in Your Mortgage Terms
There are many mortgages that seem as though they would be a good deal, but in reality, if you signed up for them you would just end up being a victim to fraud. It is important that you know how to protect yourself from an assumption and you should look for the signs and details that will give you a hint that something isn’t right with certain mortgage terms.
Not only are you susceptible to such fraud, but also so have financial institutions in the past.
How to Know when Fraud Occurs
There are a number of different scenarios in which fraud can occur. As an example a first-time buyer; let’s call her Julie Smith, is facing a couple of demand letters from the company that she thought her mortgage loan was from.
Her name was never recorded with the company that she had trusted for the mortgage. It turned out that the company that she thought the loan came from used her home equity to secure two other mortgages on her property.
She found that when she was paying her mortgage her payments were being split up and sent to 4 different lenders. She received a demand for payment eventually because she didn’t realize that this was happening before.
She was on the verge of losing her home. The good news is that she had the funds to pay the notes and she avoided foreclosure on her home. She had to turn to a different mortgage broker in order to get refinanced.
This would be an example as to why you should look into the lender that you will be using instead of just assuming that a lender is legit. If you receive a note demanding payment like the example that was just mentioned then this is a warning sign that you have been talked into fraud.
Lender doesn’t Know About an Assumption
If you are getting ready to sign up for a loan with a person that refuses for you to discuss it with the lender, then you should not accept the contract. The thing is that all legit lenders require is some sort of notification or confirmation of the sale for the property. If you find yourself dealing with a lender that is demanding the balance for the down payment then you should assume that the situation is a fraud.
Basically, the above-mentioned situation is known as a due-on-sale transfer. Make sure the company knows that you have made an agreement with the lender. If a company ignores the due-on-sale transfer then you should not deal with the company and move on to a company that is more thorough about their loan arrangements.
Lender Transactions vs Assistant Transactions
Going through a mortgage loan transaction with an assistant is very risky because this is where a person can get easily scammed. You need to make sure that the associate is affiliated with the lender before proceeding with the transaction. The lender should run everything that is discussed with the associate.
Ask a Real Estate Expert
When the lender will not let you work out some issues to avoid foreclosure you should speak with a mortgage attorney about your rights. Some lenders don’t want to work with you because they are only looking out for their interest and trying to suck all of the money out of you that they possibly can. This is a form of fraud. Make sure to look over your mortgage terms as well to see if your argument is reasonable against theirs.
Don’t Pay Upfront Fees for Consultations
Be leery of a company or an associate if they are asking for upfront consultation fees. Upfront consultations should not require payment; consultations are meant to only give you quotes to see what you can afford.