Short sales, your credit & whether you should keep paying your mortgage payments
People ask me all the time, “Should I keeping paying my mortgage payments if I am about to do a loan modification or a short sale?”
My answer to them is, “get the facts and trust your instincts.”
Here are the facts:
Effects of Short Sale on your Credit Report:
- 85-160 point reduction on your FICO score, depending on the borrower.
- Inability to obtain a mortgage for at least 24 months.
Effects of late payments on Credit Report:
- 30-60 day late payments, if considered an “isolated occurence” (you do not have 30-60 day late payments on multiple accounts), does not cause long term damage to your credit.
- 90-120+ day late payments, however, do drop your credit score for the long haul (around 7 years).
Effects of Collections (post Short Sale Deficiencies) & Debt Settlement
- Your score from suffer with both, except with debt settlement, you’ll eventually repay your debt and thus helping to rebuild your credit score
- Do not simply leave your debt hanging with collections in hopes that they will charge off the loan. They will continue to report that you are in default of “installment payments,” etc. They can do this for years. It is better to settle your debt and move on. You especially do not want additional 90 day late payments reported as your credit score at that point will drop significantly.
Here is my opinion:
Many homeowners end up spending all of their savings and living expenses on their mortgage payments, in the name of “protecting their credit.” Some are even borrowing money (using lines of credit) to pay back their mortgage. Little do they know that they are probably not accomplishing what they think they are accomplishing by paying their payments. Moreover, mortgages are not designed to replace your groceries or gas in your vehicle, and if that is the case, the homeowner either needs to get their loan modified or simply let go of the property (given their situation isn’t a consequence of some unnecessarily large personal expenses, ie. gambling). The mortgage is not right for them.
Homeowners must ask themselves, then, is it really worth paying their mortgage if you are already 90+ days late to preserve their credit? How about if you are current, based on the facts, do you have some wiggle room to reserve money to pay down other expenses? Aren’t you simply paying your banks rent money until you close your short sale? Are you supposed to be neglecting your daily necessities just to pay your mortgage? As far as loan modifications, did you know that late payments can be wrapped around the mortgage balance once you start your new payment plan?
Ask yourself, what could you do with a couple months worth of mortgage payments?
I’ve got some answers.
1. Pay off your loan mod fees (although our short sale negotiators are paid by the lender, unfortunately loan modifications do not work that way)
2. Reserve money to pay your debt negotiation specialist who can help negotiate your post short sale deficiencies (becoming much more common), consolidate all of your other unsecured debts (credit cards, medical bill, small loans etc) and repair your credit
3. Spend it on daily necessities. Do not sacrifice meals to pay your mortgage because that mortgage (as is) is not right for you.
Is it smart to spend money on money that has clearly no return on investment?
Is it smart to save money in order to save more money in the long run?
Should you keep paying your mortgage payments?
The answer: Get the facts and trust your instincts.