Foreclosure is rarely a good idea; a black mark on your credit that can make getting another mortgage or other credit difficult for years, a foreclosure tells creditors that you were unable to meet your obligations. However, there are times when a foreclosure is the lesser of two evils, and can have financial advantages.
Impossible to Refinance ARM
Adjustable rate mortgages, or ARMs, often make mortgage payments impossible for home buyers who are not prepared for payments that will go up hundreds or even thousands of dollars when rates adjust. If you're one of the many homeowners who have seen their payments escalate out of affordability due to an ARM, and are finding it impossible to refinance your mortgage, foreclosure may be better than being ruined financially by maintaining a home that you simply cannot afford.
More Home Than You Can Handle
Sometimes, it's not an ARM that makes paying for your home difficult. Rather, it's the confluence of house payment, tax payment, insurance payment, maintenance and upkeep costs and other incidental costs associated with home ownership. If your home is more than you can afford, and declining property values or other factors have made selling the home impossible, it may be wiser to allow the home to go into foreclosure than to keep paying bills associated with your home that you can ill afford.
Other Factors Creating Problems
A significant loss of income due to illness, job loss or other factor can make paying for and maintaining your home impossible. And while you do need a home, a home that is unaffordable can only make matters worse. If you cannot sell your home or refinance, it's better to go into foreclosure than continue to pay your mortgage if it means sacrificing your health or well-being by foregoing medications or other essentials to make your mortgage payment.
Making a Clean Break
If moving from your home and hometown is a necessity due to a new job or other life change, and the home you left behind is not selling, allowing the home to go into foreclosure may be the only way to rid yourself of a burden that is difficult or impossible to handle long distance. However, be warned that if you have not bought another home or signed a long-term lease in your new location, the hit your credit report takes when you stop paying on the home you left may make either option difficult.
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