When you can’t afford the payments on the house you already own, buying a second home hardly seems like a good solution. According to ABC News, however, this is a strategy of homeowners facing foreclosure.Due to the rapid drop in property values over the course of the past year, many recent borrowers are confronting debts much greater than the current value of their homes. In addition, many homeowners with adjustable rate mortgages have seen their payments skyrocket recently.
Some believe that it could be less costly to allow the first, often more expensive home to go into foreclosure or sell for a large loss. It is important for the homeowner to secure a second home before the foreclosure, however, because foreclosures seriously damage credit scores.
This practice of abandoning a first home after buying a second has been subject to criticism because some in the industry consider it deceptive and it is far from an ideal way of rectifying debt problems.
In addition, the homeowners often must be able to pay a deposit on the second home and secure a loan to finance the purchase price. ABC News suggests that in order to obtain another mortgage, potential buyers sometimes tell the bank that they plan to rent the house out or put the loan in another name.
The mortgage industry as a whole has come under serious scrutiny for the lack of farsightedness of many of its actions, so perhaps it should not be surprising that some borrowers are following suit.
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--Bridget O'Sullivan
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