How to Walk Away From a Mortgage Without Ruining Your Credit

If you find yourself in a difficult situation financially it can be tough to know what to do about your home mortgage. Should you choose a short sale or deed in lieu of foreclosure? Should you stick it out even if a foreclosure is inevitable? The reality is none of these situations are ideal and have different pros and cons but you do have options, read on to learn how to walk away from a mortgage without ruining your credit.

When Should You Walk Away from Your Mortgage

When Should You Walk Away from Your Mortgage

If you do the math and find that the amount you owe on your mortgage is more than the amount your house is worth then you are “underwater” in your mortgage. Maybe you’ve hit hard times financially and you are unable to make your mortgage payments. Perhaps you are needing to move — relocate for a job or family reasons — and your house just isn’t selling due to the condition it is in. Either way, you might be in a place where the idea of “strategic default,” — choosing to walk away from your mortgage — looks more appealing. The problem with strategic default is that it causes a big ding in your credit score that can last for years, making it hard to move on financially or to buy another home down the road. Read on to see what your options are and to learn how to walk away from a mortgage.

Short Sale

A short sale is when you sell your property for less than you owe on your mortgage. All of the proceeds from the sale go to the lender and then the lender can either forgive the difference owed or get a deficiency judgment against you, requiring you to pay the lender all or part of the money that is still owed on the mortgage. Your mortgage lender must first approve a short sale.

Pros to a Short Sale

There are times when the bank will forgive the difference, especially if you’ve been able to show proven hardship such as divorce or loss of income, allowing you to get out from your mortgage and without irreparably harming your credit score. Short sales help you to avoid the legal action and cost of a lengthy foreclosure process, lessening your financial burden and providing a solution to your financial problems.

Cons to a Short Sale

If the lender does file a deficiency judgement against you then the judgement will appear on your credit report and have a negative impact like a foreclosure. Either way, a short sale will negatively affect your credit score, the amount will be determined by what the lender reports on the short sale, how high your credit score was to begin with and if you owe a deficiency.

Deed In Lieu of Foreclosure

Deed In Lieu of Foreclosure

A deed in lieu of foreclosure is a document that transfers the title of a property from the property owner to the lender in exchange for being forgiven of any remaining mortgage debt. This step is usually sought after as a means to avoid foreclosure. This is considered an option to be considered only after you’ve tried a short sale or tried to get a loan modification. Both the lender and seller must agree to the deed in lieu of foreclosure.

Pros to Deed in Lieu of Foreclosure

Going through a deed in lieu of foreclosure helps you avoid a lengthy foreclosure process and the fees involved with that. This is a faster process than a foreclosure and allows you to get out from your debt and move on.

Cons to Deed in Lieu of Foreclosure

Unfortunately, if you were hoping to walk away from your mortgage without ruining your credit, then this step won’t help much with that. Deeding a house back to the bank will create a negative effect on your credit rating and you will have to wait several years before you can get another mortgage. Typically you’ll have to wait four years before you can get approved for a new mortgage.


A foreclosure happens when you completely default on a loan so the bank seizes the property. If you miss a certain number of monthly payments then the bank has the legal right to start the foreclosure process and to recover the amount you owe on your home by selling the property to a new owner.

Pros to a Foreclosure

There aren’t any pros to letting your home go into foreclosure — it affects your credit in a major way and it would be much better to reach out to your bank and work with them or sell your house. Click here to read all the details of the foreclosure process.

Cons to a Foreclosure

Foreclosures hurt your credit score in a big way, a dip of 200 or 300 points. This means it will be harder or even impossible to get a credit card or loan for several years after your foreclosure. If you are able to secure a loan or line of credit then you will be charged higher interest rates. Potential employers sometimes look at credit scores as well so it could also impact your ability to get a job.

A foreclosure stays on your credit report for seven years.

Can You Legally Stop Paying Your Mortage

Firstly, let’s be clear: intentionally stopping mortgage payments is not advisable in Utah, and the consequences can be severe. Foreclosure looms large, potentially culminating in the loss of your home. Late fees, credit score damage, and eviction are just the tip of the iceberg.

However, if you’re caught in a financial maelstrom, completely ignoring your mortgage isn’t the only option. Utah law provides avenues for struggling homeowners, but each involves proactive engagement, not avoidance.

Facing Foreclosure? Take Proactive Steps:

  1. Communicate with your lender immediately: Openly discuss your situation and explore options like loan modification, forbearance plans, or temporary hardship programs. Remember, lenders want to avoid foreclosure as much as you do.
  2. Seek professional help: Utah Housing Corporation (UHC) offers free foreclosure prevention counseling. They can guide you through loan workout options and connect you with resources like the Utah Homeowners Assistance Fund (UHAF), which provides financial assistance for mortgage payments and property taxes.
  3. Consider selling your home strategically: This isn’t ideal, but if unavoidable, a strategic sale through a real estate investor like myself can be a smoother, quicker option than traditional listing. We understand your situation and can offer solutions like short sales or cash purchases, allowing you to exit with dignity and potentially some financial cushion.

Remember, stopping payments should be the last resort, not the first. Open communication, seeking assistance, and exploring alternatives are far better paths to navigate financial hardship.

Resources for Utah Homeowners Facing Foreclosure:

As a real estate investor, my goal is not just to buy houses, but to help people in difficult situations. If you’re facing mortgage struggles in Utah, please reach out. We can explore options together and find a solution that works for you.

How to Walk Away From a Mortgage Without Ruining Your Credit

There is really only one way to walk away from your mortgage without ruining your credit and that is to sell your home. If your home isn’t selling in the time frame you need it to for financial or job or other reasons, or if your house is in need of repairs that are making the house harder to sell, you still have options.

Thankfully there are house buying companies like Gary Buys Houses that can purchase your home– no matter the condition– with a fast cash payment. You get the peace of mind from being out from under your mortgage and, best of all, your credit score stays in tact allowing you to purchase homes, get a credit card or a loan for a car without the credit repercussions of a short sale, deed in lieu of foreclosure or foreclosure. Gary has been in the business for more than 12 years and is a local Utah company that is ready to buy your house and save your credit score.

Gary Parker

I was a part owner in an electrical contracting firm in the late 1990’s and started to get interested in real estate around 2001. My business partner and I bought our first rental property in 2002. From there we did several real estate transactions until we decided to close the electrical business and part ways. In 2009 I started Gary Buys Houses which is owned by my wife, Eileen, and I. I felt like I could offer one on one personal service to people that wanted to sell their house quickly or not worry about repairs and such. Today, I have built a reputation of being fair and honest with people no matter their situation, so the business continues to help people and be successful. I have been married for 34 years, and have one son, two step sons and 4 grandchildren. I like to travel and spend time in Southern Utah exploring.

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