The big leverage the lenders use to try to convince you to keep paying is that to let the home go to foreclosure will long term ruin your credit score and ability to get credit.
This going into foreclosure or running late on your payments, they will tell you can ruin your credit for up to seven years making it near impossible to get another home loan within that time.
This is not necessarily true, it likely will damage your rating but the degree will be dependent on additional factors.
Bankruptcy (another option and another subject) does appear on your credit report for seven years. A foreclosure is not a bankruptcy though both can be ran at the same time.
Here, if you have multiple homes and out of five say, 2 are under water (upside down, worthless on the market then the mortgage) or high interest, etc., and you decide to let those two go to foreclosure.
Then you keep payments current on your other homes and loans, the damage would not be as severe as someone who had little or no other loans current.
Understanding the credit score rating system may help.
Credit scores go from 300 to 850 ranges.
740 or better usually entitles you to the best mortgage rates..
Fannie Mae recently raised the requirement to 620 for you to even qualify for a mortgage...
The median score is 729 which means half are higher and half lower...
Below 600 is considered a bad score and below 400 you likely will not qualify for an unsecured credit card.
If you have currently a 750 to 850 (nearly perfect score) it is suggested you may not drop below a 650 with one or more foreclosures when you at the same time have several current home loans, (including a personal home) and no other late payments.
This is speculation and seems to be no hard figures on this, but sounds reasonable. However, it will become more and more apparent to everyone, including lenders, buyers are entitled to give them back, and simply are deciding to walk away on underwater mortgages, even though they have the full ability to pay them, because it just makes good economic sense to do so.
Credit scores are basically made from rating your ability to pay.
Which will not necessarily be lowered, and cash flow likely may well be improved by letting an underwater high interest home go to foreclosure.
To help keep your credit score up, you will need to keep credit available on cards not maxed out.
For maximum help to your credit score it is suggested that you keep your credit cards paid down to 30% of available credit, spreading it out over several cards, instead of making some and nothing on others.
It is also suggested you buy the new car or whatever you may be needing credit for in the near future, before you go late and act to let some of your rental homes go into foreclosure.
Once you get past 30 days delinquent, the credit bureau is notified and everything credit wise, changes.
When letting one or more homes go to foreclosure you can likely go 6 to 7 months (some have gone over a year) of continuing to rent with no payments being made.
You want to be accumulating this cash and keeping current on all other payments.
There are steps you can take to further drag out the process which is another article.
There are laws that the tenant cannot be evicted, on foreclosure, but the lender when legally takes over, of course, then collects the rent.
You will need to verify this in your state.Rental Investors, Walkaway Forum Talk Here
Disclaimer:
Author is a long time reporter publisher, but has no real estate or tax expertise or qualifications, is a real estate investor with 14 homes, six underwater, and many with 7% loans, and running a deficiency of $5,000 per month in the rental home business. Supplying a forum where fellow investors hung out to dry can discuss options. Reporting here is research and from seeking legal council on personal situation in Arizona.(See Continued Disclaimer Bottom of Page.)
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