There is a lot of information in the news every day about programs like the government’s mortgage modification program. The program is intended to give consumers an opportunity to lower their mortgage payment by changing the terms. The program was put into place during the recession because many homeowners found themselves either unemployed or with mortgage payments that did not reflect falling house prices.
The whole point of the government modification program and the programs offered by a variety of financial institutions is to keep people in their homes. But is that always the right decision? The fact is there are millions of Americans in homes they simply cannot afford.
Owning a house is an expensive proposition. Even if the mortgage is affordable, there is the high cost of maintenance to manage. When people began losing their jobs or had their working hours reduced during the recession, it meant a higher percentage of earnings was going into the mortgage, utilities, and maintenance expenses. The problem is that little money is left over in millions of households for other basic needs like insurance, automobile payments, and even food. It comes down to a question of how to best distribute inadequate income.
Right now in the United States, it is estimated that out of every four mortgages there is one that is underwater. And underwater mortgage is a mortgage that has a higher value than the house market value. Over the last twenty years there were millions of people who were approved for mortgages they really could not afford. The American dream has always included owning a home but, perhaps that dream needs to be modified to fit the reality of the current economy.
In other words, some consumers need to accept foreclosure, rent a home or apartment, and begin repairing their credit. But how do you know when foreclosure is the best option? There are clear signs in many situations. For example, if you have been living paycheck to paycheck and the house expenses prevent you from saving money or purchasing essentials, and you are behind on your house payments with little chance of ever catching them up, then foreclosure could be a step towards a brighter financial future.
If you have an adjustable rate mortgage and the payment ballooned beyond your ability to pay, and mortgage modification is not an option, then foreclosure should be considered. If your home has no equity and you are struggling to make the mortgage payment then foreclosure is once again a feasible option. One of the reasons people own homes is to build asset value through increasing equity. When a house is underwater, it is very difficult to sell, and there is almost no chance the house can be refinanced. No one is going to lend you money for asset value that does not exist.
Another situation that indicates foreclosure might be a good option is when you are using every last penny to hang on to your home and other bills, like utilities, are falling behind.
Foreclosure will hurt your credit rating, but not indefinitely. It is clear that the painful decision to allow foreclosure to occur is sometimes the best decision in order to get finances back on track. It is impossible to enjoy life when constantly burdened with debt problems.
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