Don’t let your credit score fall down. There are many current homeowners who can afford their mortgage, but are upset that their home is not worth what it once was. These people are called “strategic defaulters”. But walking away from a mortgage, especially one you can afford, is a bad idea.
Here are the average deductions you can expect to see from your credit score, in some different situations. And these deductions stay on your credit report for many years:
30 days late on mortgage: 40 – 110 points
90 days late: 70 – 135 points
Foreclosure, short sale or deed-in-lieu: 85 – 160
Bankruptcy: 130 – 240
Some strategic defaulters even buy or rent a new home, before defaulting on the one that is worth much less than they paid. And they think that is smart because they have at least secured a new home.
But when your credit score drops it affects many things. Insurers will check your credit when you apply for insurance, whether it be medical, homeowners, auto or life insurance. Employers often times check credit now when hiring employees. And obviously you will have your credit score checked when getting any other credit such as a credit card, car loan, school loan, etc., not just a mortgage.
So you really have to think hard about walking away from your mortgage. I’d do anything in my power to stay in the home and pay the mortgage, or get involved with your mortgage holder and negotiate a short sale. A short sale will hurt your score less than a foreclosure or a deed-in-lieu, and you can get your score back up more quickly after a short sale. But in the end, the best thing to do, if you can, is stay in the home and keep making the payments.