Home values are down thirty, forty, even fifty percent or more in various locations from their values at the peak of the market and unemployment in various places around the country is well into the double digits. Nationwide, over 30 percent of mortgage holders owe more than their houses are worth. Better than one out of every eight home loans are delinquent in some respect, and there doesn’t seem to be an end in sight.

If you are in the position of defaulting on your loan, there are three basic options: a short sale, loan modification or a foreclosure. A lot of the advise you will get these days would point towards the short sales, due to the fact that they offer an upside to Realtors, agents, lenders and buyers. But are short sales the best option available to the actual home owner?

Typically, it really is not the best option to pursue, even though many working with you in the process might like you to believe otherwise.

Let`s look at this in more detail. The first question is what to do when you realize you can no longer pay your home loan. If you should stop making payments, what will happen?

An immediate consequence is that your credit will be harmed. That score is a key point to future lenders who will decide at some later point whether they want to lend you money, which might force you into working with hard money lenders in the future. Increasingly, it’s also being used by employers and landlords, to name a few. Ruining your credit is not something to rush headlong into.

Your credit score is figured using outdated and proprietary formulas using information collected from your entire credit history. According to the credit bureaus, these scoring systems are meant to give an indication of how likely a particular person is to stop paying on a debt during the first two years of it’s lifetime.

There are a number of companies other than the big three that have their own scoring models, most running numbers between 500 and 900. If you stop making payments, most of the models will lower your score into the 600 range or lower

If your credit score is below 650 in today’s market, putting together a loan of any kind can be terribly difficult (except for the more expensive money offered through private hard money
). When sitting down to make your decision on which way to go, a short sale of your property will not save your credit, despite what many will have you believe. So what is the benefit of short selling your home?

The largest benefit is getting the debt you owe forgiven (be sure to read the fine print), and avoiding a foreclosure on your credit. A short sale likely will impact your credit score about the same as a foreclosure, but by short selling your home, you will be able to get another conventional type loan in about two years or so, rather than 3 or more with a foreclosure.

You may want to consider looking into loan modification
. This can be a tough process to work with the banks on, but if you need to stay in your house and save your credit, a loan modification may be a better avenue to look at.

You must to do your own due dilligence before you decide what direction or option you are going to pursue. Also remember that different states have different laws and there will be different ramifications for the various options. Locate a highly reccomended real estate professional and/or real estate attorney, sit down, and talk about all your options before you make a choice. This is a large financial decision, it is important to get it right!