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What Will Foreclosure Do to Your Credit?

Foreclosure is a terrible blow. Losing your home is financially and emotionally devastating. If foreclosure is in your future, you might want to sell before it reaches that point. The negative effects of foreclosure are far-reaching, especially to your credit score.

Will Losing My Home Ruin My Credit?

Your credit score is an indicator of how likely you are to pay back any loan that you receive, which is why lenders put such a huge emphasis on it. Defaulting on your mortgage and dealing with a foreclosure leaves your lender out a lot of money, and that is going to reflect in your score as a warning to any future lenders. That’s why is so important to opt for a mortgage that you can reasonably pay. It’s no small thing to default on a home loan. Before buying a home, research all of your options. Rather than opting for a traditional mortgage, you may find that you could save money with a hybrid home loan or other option.

Foreclosure normally lowers your credit score by 200 points or more, depending on how much money you still owe. An 800 credit score is near-perfect. But take that 800, add a foreclosure, and you’ve got 600 or lower. Anything below 630 is considered poor, so just like that, your credit is ruined.

Can I Buy Another Home?

If you have just lost your home in a foreclosure, it isn’t likely that you are going to be able to buy a new home in the near future. Events like bankruptcy stay on your credit report for seven years, and most lenders are unwilling to approve you for a mortgage right after a bankruptcy. Even if you find one who is willing, your interest rates are going to be through the roof, so you may not even be able to afford a new home. FHA loans are the most forgiving, and they require you to wait for at least three years. While you can eventually refinance, any loan you get will have pretty bad terms.  If you end up with a foreclosure, you will probably need to rent a home for the next few years.

What Can I Do?

If you haven’t quite gotten to the point of a foreclosure, there are a couple options available that you can use to save your home or avoid ending up with a foreclosure on your credit score. If you can refinance your mortgage, this is probably the best option, as it can lower your payments and let you keep your home. You may also be able to declare bankruptcy, but that doesn’t work for everyone. Make sure you do your legal homework before you go down this road.

If refinancing or bankruptcy aren’t an option, you can try selling your home. If your home has already entered the foreclosure process, you will need to get permission from your lender, but if not, you can find any buyer. We take over many houses on the brink of foreclosure and negotiate payments with your lender for you, so if you are in this situation, consider giving us a call. We want to help you avoid a foreclosure and put you in a position to move forward with your life.