Many individuals take out a loan so that they can afford to buy a house. It is the largest purchase most of us will ever make. Some people have enough money to buy a property on their own. Other need to apply for credit at a mortgage lender. If you make a decision to visit a bank and request a loan, it will save you a lot of time. You won’t need to collect money for years, maybe even decades, to accomplish the goal of becoming a homeowner.
However, if you apply for credit at a lender, you might face some complications in the future. The problem is, you never know when you can get fired, or suffer an injury that prevents you from having a job. As a result, you won’t have a steady monthly income. If something like this happens, you might experience difficulties paying back the credit. Another situation that could lead to financial troubles is if you face a decrease in salary. Also, your children could go to college, which is quite expensive. All of these cases can have an adverse impact on your financial ability to maintain a mortgage.
What to do if you fall behind on your monthly loan payments?
If you can’t afford to pay your credit obligations on time, you have two choices – a short sale and a foreclosure. It is up to you to pick the one that is suitable to your situation. Most individuals prefer the first alternative. Both of these options are available to borrowers who are behind on their mortgage payments. No matter which one you choose, you have to part with your property. However, the consequences of these alternatives vary. When it comes to the first one, it includes short selling the home. As a result, you won’t owe money to your lender anymore. Homeowners usually initiate this decision. All you need to do is to contact your bank and make sure they agree with the execution of a short sale. On the other hand, a foreclosure is a situation when a lender seizes the property after the borrower fails to pay loan obligations. Only banks initiate this decision.
Short sale benefits
The first advantage is that it will cause less damage to your credit rating in comparison to foreclosure. You can also minimize the damage if you stay current on all of your loan obligations until the end of the sale process. Remember that a large part of your score is determined based on your history of timely payments. If you are late on some of them, it will bring down your rating a lot.
The second benefit is that you will be able to qualify for another loan sooner than with a foreclosure. You will be eligible for purchasing a house two years after you sell your home short. Finally, it provides psychological comfort. Losing a property to a foreclosure can carry social as well as moral stigma. You will feel more satisfied in the end if you try to pay back as much of your loan as possible. Although the short sale process can be a complicated one, it is a much better option than foreclosure.