In today’s real estate market, many homeowners find themselves in a situation where their mortgages are underwater. An underwater mortgage means that the value of the mortgage is greater than the market value of the home. The homeowners options for selling the home become limited. The choices available are to pay the loss out of pocket, short sale, foreclosure or just walk away from the home.
Choosing to walk away from your home, regardless of whether you can afford the mortgage payment or not is a decision that will have a long-lasting impact on your credit. While it may seem like a good move to simply stop paying and walk away from a bad investment, keep several factors in mind when you consider strategic default:
- Defaulting will lead to foreclosure by the lender, and will negatively impact your credit score
- The default will remain on your credit report for up to seven years
- Consider all the potential lenders that may need to view your credit report
- In some cases, the debt forgiven may be recorded as income which means you will have to pay taxes on it.
It is important to know the implications involved in your decision to walk away from your home. Research is important, so visit the U.S. Department of Housing and Urban Development website for information as well and the IRS website.