Can you walk away from your home loan – What are the consequences?

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In many a cases, homeowners walk away from the home loan in case of low affordability and if the house is underwater. So, yes, it is possible to walk away from the home, in case it is underwater and you cannot afford to make the payments on the home loan. The consequences of walking away from your home loan differs from one state to the other. So, if you are underwater and if you want to avoid the payments on the same, you will have to be aware of the type of state you are in. On the basis of the home loan, you can be either in a recourse state or a non-recourse state.

Results of walking away from home loan

If you walk away from your home, some of the most serious consequences which you may have to face are:

1.  You will have ruined credit – If you walk away from your home loan, it is going to have a hugely negative effect on your credit. This is because, when you walk away the lender definitely is going to foreclose your home. Foreclosure lowers your credit by 200-300 points. It is going to take time for you to recover your credit. So, before you do walk off, you will have to keep this important factor in mind.

2.  You will have problems in obtaining a mortgage – As you walk off and as the lender forecloses your home, your credit score lowers. This has an overall negative effect on your credit. So, it is obvious that it is going to be tough for you to obtain a mortgage soon. This means, it may not be possible for you to buy a new home, soon after you walk off from your last home. Therefore, you will have no other option but to wait for a few years, and live on rent.

3.  You may be served with a deficiency judgment – Depending on the state you are in, you may be served with a deficiency judgment. This again will depend on the type of state you are in. If you are in a non-recourse state, you can hand over the keys to your lender, and simply walk off. In such a state, the lender can have either the house or what you owe on the mortgage. On the other hand, if you are in a recourse state, you will be sued. In such states, the lenders can not only foreclose. They can also sue you, if the value of the home is far less than what was borrowed.

4.  The foreclosure gets listed – As the lender forecloses your home, it gets listed on your credit report. This listing will stay on the credit reports for seven years. The effect of this is same as that of its effect on the credit score. When you will be applying for new credit, the creditor or the lender will pull your credit report. If they see such a negative listing on your credit report, they certainly will not take it lightly.

So, the above are the effects of walking away from your home, without paying down the mortgage. In order to buy a new home, you will have to work hard and improve your credit. This is going to take time, and you need to have enough patience for the same. You will not only be required to go on making the on-time payments on the existent debts, but you will also have to try and do away with the negative listings. If possible, you will have to find out whether or not you can dispute with the same. This can help a lot with the improvement of your credit.

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Categories : General Real Estate

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