Keeping your home or letting it go: What to Consider

The shock of receiving a notice that your home is being foreclosed is an emotional shock.  You may feel angry, sad or depressed.  A homeowner must put those emotions aside and accept that they need to take stock in their financial situation.  In making the final decision to keep or let your home go you must look at several factors in a practical way.

 

First, you must determine if you have equity in your home.  Chances are when you bought your home it was worth more than you borrowed.  With the downturn in the economy due to frivolous lending, failing business, inflation on other goods, unemployment and homeowners unable to make their monthly payments home values have continued to decrease.

 

How do you determine home values?

Generally, the value of your home is based on the value that other houses in your area have sold for.  A couple good resources to determine the value of your home include:

www.zillow.com & www.housevalues.com

 

Due to the rise in foreclosures home values have plummeted.  Vacant homes decrease the value of surrounding homes, foreclosed homes sell for substantially less because banks do not want to sit on homes, and as these homes sit they further decrease in value.

 

Determine your equity

Take the market value of your home.

Determine the cost of selling your home

Take the amount you owe on your mortgage and any other liens on the property.

 

The equity in your home is the market value minus the cost of selling and amount owed.

 

Second, consider if you can make your monthly payments.  As a general rule based on the government you should not pay more than 31% of your gross monthly income on mortgage.  That is a generous number, it should be more like 25%.

To calculate how much you can afford use an online mortgage calculator to see how much mortgage you would qualify for right now.  This will take into account your income and other debts.  If it is less than your mortgage now, you may want to consider letting your home go or a reorganization plan through Chapter 13 bankruptcy.

 

Third, create a budget.  Take an inventory of all your monthly expenses.  Look for area in which you can cut spending.  If the numbers don’t add up letting go or a Chapter 13 may be favorable.

 

Need more help?

When you file for bankruptcy you complete a credit counseling class.  These are administered by agencies that will provide information about budgeting and other useful financial information.

 

3 Ways to Reduce Your Debts

  1. Mortgage Modification – there are several federally sponsored programs to assist you in making your monthly payments more affordable.  You do have to qualify for these programs and lenders may not be required to participate.
  2. Chapter 13 bankruptcy – a chapter 13 bankruptcy allows you to combine all your payments in one affordable monthly payment, A plan is put in place to in which you repay your arrears to the mortgage company over the life of the bankruptcy plan.
  3. Chapter 7 bankruptcy – this is a shorter process that eliminates your unsecured debt (credit card bills, medical bills, unsecured loans) to allow for extra income to make your monthly mortgage payment.

 

Overall, if you have some equity in your home, or are able to continue making your mortgage payments you may consider keeping your home.  On the other hand, if you are severely upside down on your mortgage or your home is worth significantly less that you paid for it you may consider letting it go.

 

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