Walking away from any mortgage obligation is rarely pleasant. But if you’re looking down the path this year and cannot envision any situation where you’ll be able to avoid foreclosure, get out as quickly as possible as the pain, psychically and credit-wise of losing your home may become even more painful.
Now here’s the DISCLAIMER: I’m not encouraging anyone to default on their mortgage if they’re simply a bit upside down on their equity to debt relationship and still able to make the payment. Hang tough, home prices will eventually rise as they always have as compared to the dollar value with which you purchased your home and you’ll get upright again. So don’t rush for the door simply to avoid a multiple year struggle to right your ship. So, if you have fairly dependable income and you can comfortably make the monthlies without serving your family Ramen noodles every night of the year, you can make it through the equity squeeze you've been experiencing. Don’t even consider choosing foreclosure.
But if you're fairly certain after completing our soul searching that because of your cash flow situation you’ll be foreclosed upon in the next twelve to 18 months or so, it may behoove you to act decisively and pull the trigger on the process. There are multiple reasons which may have placed you in this position. The market could have turned recessionary devaluing homes; you may have lost that plumb job with a great salary and just are not able to replace it; Maybe your two income family has become a one earner enterprise due to death or divorce; And lastly, maybe with easy credit you were doing cash out refinances a bit too aggressively so little equity was left in your property.
Regardless of the reason, just pull off the bandage sooner rather than later and commence the financial healing process.