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Q&A: Is Foreclosure the Smartest Option?


Dear Rachel,

If we owe more on our home than it is worth, is foreclosure the smartest option?

Thank You - Jessica


Dear Jessica,

Allowing a property to go into foreclosure is never the smartest option. Foreclosure destroys your credit rating.. making it very difficult to get good interest rates on future purchases.

Foreclosure and bankruptcy lower your credit score dramatically. For that reason it is never advisable to resort to either of these options unless you absolutely have no other choice.

In declaring bankruptcy.. depending on which chapter you will be filing.. you may find you are still responsible to pay back at least part of the debt. Not to mention.. it can take 7-10 years for these types of items to be removed from your credit reports.

In that length of time your home will likely have experienced a substantial increase in value.. making all the disruption and turmoill you would have put yourself and your family through completely unnecessary.

Discarding something as soon as it is no longer worth what you paid for it is not conducive to establishing a stable financial profile. When you purchase a new car.. it depreciates considerably as soon as you drive it home. However, that doesn't mean that you are going to walk away from it just because it is no longer worth what you paid for it.

Fortunately, unlike automobiles.. real estate values do come back. Housing prices in your area may have dropped, as they have just about everywhere. However, I am assuming you like your home or you would not have purchased it in the first place.

My advice would be not to disrupt your family and your entire financial future.. after all you have to live somewhere. If you like your home.. stay put and enjoy it. Property values rise and property values fall. They will return to what they were previously.. it just takes some time.

In the 90's.. previously high home values declined by as much as 50%. Several years later they began increasing again and by 2005-2006 the values were higher than they had been prior to the decline.

 
Ask Rachel

Article Courtesy of: CreditCardApprovalCenter.com


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