Many homeowners across the country faced with plummeting home values, are choosing to pursue the path of strategic default on their mortgage. The debt owed on the property is substantially greater than the home’s market value and the property is “underwater”, and they conclude their home’s value will not recover in the foreseeable future. By definition a strategic default occurs when a borrower has the ability to pay the mortgage on a home, but chooses to “walk away” from the home and let the lender foreclose on the property. There has been a term coined “jingle mail” , describing the sound of house keys in an envelope as they are mailed to the lender.
Nationally, 34 percent of foreclosures are the “strategic” variety, according to a September 2011 survey conducted by the University of Chicago. Approximately 10.9 million, or 22.5 percent of all residential properties with a mortgage had negative equity at the end of the second quarter of 2011. Nevada had the highest negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent). In addition, 75 percent of homes with negative equity have above market interest rates.
While walking away from your home may seem like a simple solution, the process of recovering from a strategic default takes time. The wait to be considered for a home loan can be anywhere from three to seven years after a foreclosure has been completed. While there are a number of factors that lenders consider when evaluating a request for a home loan, this has to go hand in hand with the applicant proving they have been able to manage their debt since the foreclosure. For most people, their credit score is severely impacted once a foreclosure shows up on their credit report. On average, a foreclosure will stay on a credit report for up to seven years after the initial reporting date.
In general, as the foreclosure rating gets older, it has less and less impact on the person’s credit score. However, the time it takes for a credit score to rebound can be enhanced substantially if a person follows some credit best practices in managing his or her debt and simply pays his or her bills on time. According to the Federal Housing Administration, if a person with a past foreclosure has waited three years, has at least a 620 credit score and meets other lending requirements for debt and income, they can qualify for an FHA home loan. Conventional loans, which often have more desirable interest rates, have a waiting period of seven years, and VA loans, two years. In other cases, lenders may not be willing to consider a loan for some time if the reason for the foreclosure was simply because the homeowner chose not to make a payment or because they had too much other debt.
Wallingford Real Estate – Wallingford, PA 19086
