Credit cards were first used in New York City to pay for dinner at restaurants. Every day, every hour you are bombarded with commercials on TV telling you to refinance your home or take out an equity loan to pay off your credit card debt. They are very convincing and the payment terms sound inviting.But the results can be devastating.
Every week I meet people who cannot sell their home for enough to pay off their loans because they owe more on their home than current market value. They took out an equity loan to pay off credit cards, buy a car, or make large improvements to their home. Then something happens in their life.
Sometimes they lose their job or their hours get cut back at work and they can no longer make the payments on both loans.
Sometimes they become ill and have large medical bills. The person who is ill may be unable to work. When these medical bills are added to their other bills, there isn’t enough money to pay them.
Sometimes they decide to divorce and go their separate ways. It’s expensive to support two households. The person living in the home may be unable to make the payments with only their income.
The end result is an unhappy one. Look in the newspaper on Fridays at the number of foreclosure properties that are listed there. It is staggering. At some point, all these homeowners were excited, happy buyers with big dreams for their homes. Now they are going to lose their homes.
They stay in their homes as long as possible, but then they are required to leave by their lender. Their credit is trashed and it will be quite awhile before they can own another home.
Sometimes the lender will work with the owner and take a short sale. This means the lender allows the homeowner to sell the home at market value even though the market value is less than the amount owed on the loan. The homeowner still loses their home, but it does not go into foreclosure.
When a property goes into foreclosure, there is usually a sheriff’s sale on the property. Most of the time the bank holding the loan will purchase the property at the sheriff’s sale and eventually put it on the real estate market.
Many people believe the amount the bank paid for it at the sheriff’s sale or the amount the previous owner owed to the lender determines the price the lender will put on it. But actually, neither of these are a determining factor in pricing the property. The lender has it appraised and lists it at or near the appraised value.
Many of the foreclosure properties are purchased by local investors. They make improvements to the property and either rent them out or sell them. Usually when a homeowner is going through the process of the foreclosure, they are unable or unwilling to keep up the maintenance of their property.
The local investors make the necessary maintenance repairs and improve the exterior of the property. This in turn improves the neighborhood.
If you’re having trouble making your mortgage payments, contact your lender’s Loss Mitigation Department and see if they will allow you to do a short sale on your home instead of going through a foreclosure. The short sale is still a bump on your credit, but it isn’t anything like the hit your credit would take from a foreclosure.
Kathy Henne is a RE/MAX realtor, she can be reached at (937) 778-3961 or visit www.KathyHenneTeam.com for more information