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Want to back out of your mortgage loan? Here's what could happen

There's no easy way to recover, but here's what steps to take, and how long it will take to get another loan.

DALLAS — The North Texas housing market is starting cool. Interest rates have nearly doubled since the start of the year and it’s forcing buyers to take a step back.

“Consumers are basically saying, 'You know what? I don’t want this mortgage loan any longer because I can’t afford that monthly payment.' And then, of course, when you start tacking on things like escrows for property taxes and escrows for homeowners insurance, that monthly payment is going to be considerably higher than it was last year at this time,” says credit expert John Ulzheimer.

Ulzheimer is hearing from more buyers who want to back out of their mortgage. He says they’re realizing interest rates and inflation is gradually growing during their housing search. 

So how will this impact your credit if you walk away from your mortgage loan?

“If you back out at that point, then you’re going to go through the foreclosure process, the lender is going to take the home away from you, they’re going to sell it, it’s just a mess,” Ulzheimer explains.

There is no easy way to recover, but there are steps you can take.

 “You can list the house and sell it and hopefully you can sell it for enough to cover the amount that you borrowed. Or you can ask the lender for forbearance or some sort of loan modification,” said Ulzheimer.

The consequences don’t end there. Ulzheimer says you could wait 7 years before getting another mortgage loan because of Fanny Mae and Freddie Mac’s forced waiting periods policy.

“You may miss the next housing boom, you may miss the next dip in mortgage interest rates, so to the extent you can avoid getting into a mortgage loan that you know you cannot afford, do it now,” said Ulzheimer.

Because once you sign the dotted line, there’s no going back.

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