Preserve Your Credit
I’m not sure if potential home buyers truly understand the changes in lending standards that have taken place. In the news we keep hearing about people walking away from homes and tarnishing their credit in the process. Some people see no other option, while others are doing it because of drops in home values. Other than not liking making the mortgage on a currently depreciating home, they can otherwise afford the payment. The price? A credit rating.
As the economy has modernized, those three numbers that comprise your credit score have become instrumental in not only determining whether you’ll be extended credit, but they impact your insurance rates and even if you’ll be extended a job or a promotion. Voluntarily tanking your credit score is simply foolish.
In the past
eight or ten years, lenders loosened lending standards to the point that just about anyone could qualify for a loan. That borrower may have had to pay a higher interest rate and put money down, but they could get a loan. The current credit standards are much different. Potential home buyers are being completely turned down for having credit scores that as little as three months ago could have gotten them a decently priced FHA loan.
They say that cash is king, especially in a recession. When it comes to purchasing power, credit is queen. In today’s rising delinquency environment, it’s incredibly important to maintain good credit. It’s a buyers market for homes, cars and consumer items and having cash or credit can help you take advantage. It is crucial to preserve or improve your credit if you want to buy a home.
MSN Money had a pretty good article this week about protecting your credit in a downturn. Take a look to see the basics.
If you’re kind of on the edge and wondering whether it makes sense to pay your mortgage/car payment/credit cards, the answer is yes. Cut down on non-essential spending or take an extra job temporarily to make ends meet. Remember this situation is temporary.
Here are some of the long term consequences of seriously negative credit:
Foreclosure - 3 years minimum to qualify for another house.
Bankruptcy - Stays on your record for 7-10 years depending on which type. Needs to be discharged 2 or 3 years depending on the lender.
Mortgage lates - Going 120 days late is considered a foreclosure by many lenders.
Late payments - Stay on your credit for seven years, but lose most of their impact after three years. Government loans (FHA/VA) require 12 months of clean payment history.
Still want to walk away?