Dear Liz: My son lives in an area where the real estate market took a major hit. His first and second mortgages total $320,000. The value of his home is now $180,000 to $200,000. He has a good job but is having trouble making ends meet. He can’t refinance, although if he could this would save him hundreds of dollars.
He is 34 and has talked about just walking away. His credit score is around 800, and he pays all his bills.
If he walks away, how long would it take him to reestablish his credit to buy another home? He has talked to his bank, but for the bank to help, he would have to have lost his job. Please provide advice on what he needs to do. He is getting frustrated living check to check.
Answer: This seems to be Concerned Parent Day.
Your son should first check with a housing counselor approved by the U.S. Department of Housing and Urban Development to make sure he understands all his options. He can find one at www.hud.gov.
A foreclosure or short sale (selling the home for less than what he owes, with the bank’s permission) would trash his credit scores, but with otherwise responsible credit behavior, he could begin rebuilding his credit to near-prime levels within a few years.
He could get another mortgage from a conventional lender two years after a short sale and five years after a foreclosure. He could get a mortgage from the Federal Housing Administration two years after a foreclosure.
Once he understands his options, he’ll still have to make a decision about whether he’s comfortable walking away from this debt. Many people believe they have a moral obligation to pay a mortgage if they possibly can.
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