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In these harsh economic times, there are situations in which you simply have to bite the bullet and do what needs to be done. If you are sinking paycheck after paycheck into a mortgaged home that is not worth its value anymore, it’s time to cut your losses. Unfortunately, ridding yourself of a burdensome property is not as easy as Monopoly would lead you to believe. Do not be overly distraught just yet, though. There is an alternative to foreclosure that you should consider.

There are several reasons why an individual may be forced into either a short sale or a foreclosure. Unemployment, a nasty divorce, or lack of funds for whatever reason can lead you to such a point. Regrettably, it’s a difficult situation to stop once it has started; the lender tends to notice pretty quickly when payments have stopped coming in. Law requires that you get a warning of some sort, but by that point, your options are limited.

Foreclosure occurs when the bank takes back the property. This means that you have failed to make payments on your mortgage, and as collateral, the lender strips you of all property rights and takes the home from you. The long-term effects of foreclosure can be painful as well, affecting your credit and preventing you from purchasing another home for five to seven years. It is not uncommon for prospective employers to run credit checks as well, and a foreclosure on your record may cost you a much needed job opportunity.

A short sale, when possible, is a much better alternative. A short sale is when you sell the home for less than what you owe. The lender must approve the short sale, but because there are so many properties in foreclosure and programs supported by the government to help you through the short sale process, this can be a positive alternative.  You are still forced to sell your home, but at least this way, it is on your terms.

Keep in mind that the lender has to agree to it first, and you may owe any deficits, depending on the agreement. This a better option than foreclosure, in that as long as you were never behind on your payments, you can purchase another home immediately. Although your credit scores will still drop, the term “short sale” will never appear on your credit report the same way a foreclosure would.

It sounds like a catch-22 but when forced into such a situation, you have to choose the lesser of two evils. Although a short sale will still hurt your credit score, there are ways to recover. It might take a few years, but with the right strategies, you can rid yourself of debt, raise your credit score, ensure that you are in never in such a position again and buy a new home much sooner.

One in every ten climbers dies trying to reach the top of Mount Everest. Even using every resource available to them, only 20% can reach the top. Getting into position for financial success or trying to improve your credit rating can feel like climbing a mountain, but it doesn’t have to. We can help you exercise wisdom while seeking creative ways to use your resources.

An improved or repaired credit rating means more options for you. How are you planning to spend your return? Approximately 84% of Americans are planning to invest their check from Uncle Sam this year in assets that add to their worth – cars and other major purchases.

Due to recent home market trends, more people are renting houses. A good credit score can put you in a position to buy a home – either for yourself or as a way to create extra income by renting it out to others. Great deals on homes can be found all across the country these days, and a healthy down payment can increase your monthly returns by making payments more manageable.

Using your tax return to purchase an automobile may be an option as well. Most car dealers salivate over the opportunities tax time presents, even offering to do your taxes right there at the showroom so that you can use the refund to make your down payment.

Using your tax refund to make down payments on large purchases provides you with two possible benefits: a lower and more manageable monthly payment, or the ability to buy more than you would have been able to afford otherwise.

A down payment will not, however, affect the interest rate you are able to get for the items you finance.

Your credit score is what determines the interest rate on the loans you obtain. That single number can have more to do with your overall purchasing power than any other number. The credit report will directly affect how much you will ultimately spend on interest. Can a down payment improve the amount that you pay in interest, too? Yes. While it will not lower your interest rate, it can significantly cut the total amount that you have to finance.

A down payment is basically discretionary funds used to pay on the principle of a loan up front. When coupled with a good credit score, it can put you in a position to make some seriously good choices for your life. If you’re credit is suffering or in need of repair, you’re often wise to wait on the purchase and use your tax refund to pay down your credit debt so that you can improve your score.

Mortgage rates are bouncing off of 40 year lows.  Seems like the best time to buy a house or refinance.  Not so fast – there is a catch.  You have to qualify first!

Before the recession, qualifying for a mortgage was not much of an issue.  The overall standards were pretty low.  If you had a low credit score, you could still qualify for financing.  Your credit score did not necessarily determine if you qualified more so than the rate that you qualified for.   People with higher credit scores received lower rates and people with lower credit scores received higher rates.  But just about everyone qualified for something. 

The lending environment today is vastly different.  Only those that meet the highest qualification standards can get financing.  According to the Federal Reserve, about seventy five percent of those that apply for financing are qualifying.  Of course, the number of those applying for loans has decreased significantly. 

According to Fannie Mae and Freddie Mac, the average credit score for loans that they finance has risen to 760.  It was 720 just a few years ago.  For FHA loans, the average score has increased to 700 from 660.

The subprime market has just about disappeared altogether.  Before the recession, subprime lenders routinely made loans to borrowers with credit scores below 620.  Today, it is very difficult to find lenders willing to make these loans. 

If you are thinking about financing, you should check your credit score.  If your score is below some of the qualifying averages, take proactive steps to improve your credit scores.  Remember, about eighty percent of the credit reports contain errors.  With a little bit of effort, you might find that you do qualify for a loan at the current rates after all.