When you can no longer afford your mortgage payment, one option that you have is to voluntarily offer your home back to the mortgage lender. While this will result in losing your home, it can help get you a fresh start and get out of the mortgage debt. It can also be slightly less damaging to your credit than a regular foreclosure
Voluntary Foreclosure
Voluntary foreclosure is a process in which you offer the deed to the property back to the mortgage lender. You give the deed to the property back to the lender and the lender lets you get out of the rest of your mortgage debt. The lender then takes possession of your house and tries to sell it. If the lender sells the house for less than what you owed on the mortgage, that amount will be forgiven by the lender.
Impact on Credit Score
When you go through foreclosure, regardless of whether it is voluntarily or involuntarily, it will negatively impact your credit score. According to CNN Money, your credit score will be lowered by somewhere between 85 and 160 points. The exact amount your credit score is lowered by will depend on what your credit score was to begin with. People with higher scores will be impacted more by a voluntary foreclosure than those with lower scores.
Lessening the Blow
When you allow your home to go through a normal foreclosure, it typically takes several months before the process is completed. For example, from the time you miss your first payment to the time the house is foreclosed on might be somewhere between six months and one year. Each time you do not make a payment, it hurts your score by as much as 110 points. This means that if you voluntarily allow the lender to foreclose, you have fewer missed payments on your record.
Start Rebuilding
Another benefit of using a voluntary foreclosure is that it allows you to start rebuilding faster. When you give the deed to the property back to the lender, you can immediately start taking the necessary steps to rebuild your credit. You can start making regular payments and start using credit sparingly. This will allow you to have your credit score rebuilt a bit by the time it would have taken you to go through a normal foreclosure.
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