Just how is the average American supposed to make their way through the existing real estate market and foreclosure crisis?

Real estate values are down 50 percent or more in some areas from their values at the peak of the market and unemployment in California is above the ten percent mark. Across the nation, over one third of individuals who own their homes owe more than their homes 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 home loan, you have only a handful of avenues to go: a loan modification, a foreclosure or a short sale. A lot of the advise you will get these days would point towards the short sales, as they offer a benefit to real estate agents, lenders and buyers. But are short sales the best option available to the actual home owner?

Generally, it truly is not in your best interest, even though those working with you during this time of need may want you to believe it is.

If we take a closer look, we can see the consequences to various actions. So you are struggling to make mortgage payments. If you should stop making payments, what will happen?

An immediate consequence is that your credit will be harmed. Your credit score is crucial to future lenders who may have to decide at some later point if you are worthy of making a loan to, and could mean you have to turn to private money in the future. Additionally, your credit score is also being used by potential landlords and employers. It’s not a figure to be taken lightly.

Your FICO, or credit score is created with old and proprietary formulas using data collected from your entire credit history. These credit scores are basically an indicator of how likely an individual is to default during the first two years of a loan, and are used by almost everyone who extends credit.

Other companies have their own formulas that do pretty much the same thing. On another popular credit score scale, which runs from 500 to 990, stopping payments on all your loans will drop you into the low 600s.

If you have a credit score of less than 600 these days, getting a loan for any purpose can be very hard (unless you are looking at going with private hard money lenders). When deciding on which direction you want to go, doing a short sale of your house will not save your credit, contrary to what many may want you to believe. So are there any benefits to short selling your house instead of walking away?

The biggest 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 will impact your credit score about the same as a foreclosure, but with a short sale, you will be eligible for another conventional type loan in about two years or so, as opposed to three or more that a foreclosure will require.

You may want to consider looking into loan modification. Oftentimes, this is a long process to work with the banks on, but if you need to stay in your home and save your credit, a loan modification may be a better solution to look at.

You must to do your own research before you choose which direction or option you are going to pursue. It will also matter in which state you live, as there will be different ramifications for the various options. Locate a good real estate professional and/or real estate lawyer, make an appointment, and discuss all your options before you make a decision. When making this decision, make sure you are comfortable with the direction you choose, good luck!