Facing a foreclosure can be a devastating experience for homeowners.
In addition to losing your home, other negative impacts of foreclosure can be long-lasting, as well.
For example, foreclosure can harm your credit and will be viewed as a negative event in your credit history. Here’s what you need to know about how a foreclosure affects your credit.
What is a foreclosure?
Essentially, foreclosure is when a lender legally takes a home back from its owner after the owner fails to make payments on their mortgage.
If you took out a mortgage to buy a home, you are responsible for paying off that mortgage according to the terms you agreed to. If you, the homeowner, repeatedly fail to make several of your payments, your lender could initiate a foreclosure of your home.
If the foreclosure is successful, the ownership of your home transfers to the lender. Foreclosure is a way for lenders to ensure that they receive compensation and repayment for mortgages they lend to homeowners.
Foreclosures can happen when the homeowner fails to make payments for any number of reasons, including:
- Losing a job
- Getting saddled with unexpected debt
- Medical expenses
- Natural disasters
- Poor money management
Whatever the reason, the homeowner cannot or does not try to pay off their mortgage, so the lender seizes the collateral, which is the house itself, as a substitute for payment.
How does a foreclosure affect your credit score?
In a word: badly.
There’s no way to know exactly how many points you can lose because of a foreclosure, but you will definitely lose a decent amount.
And the better your score is, the more you stand to lose.
On average, the higher someone’s credit score was before their foreclosure, the more it decreased afterwards. On top of that, it can take several long years for a credit score to fully recover from a foreclosure.
What about your credit history/credit report?
The damage of a foreclosure doesn’t stop at your credit score. It’ll also affect your credit history and your credit report.
A foreclosure will be a glaring stain on your credit history, and while that stain won’t last forever, it certainly won’t go away for a while.
In fact, a foreclosure will remain on your credit report for seven years. So if you try to apply for a loan, that foreclosure will show up on your credit report for any lender to see, which will almost certainly affect your application.
That being said, there are lenders out there who will loan money to you so you may be able to buy another home, even if you have a foreclosure on your record. However, many of these lenders have waiting periods for people with past foreclosures that can range anywhere from three to seven years.
Contact Adam Diamond Law to keep your credit from suffering from a foreclosure
While there are lots of ways for people to recover from a foreclosure and rebuild their credit score and their reputation, a foreclosure is bound to be a huge hit to anyone. Unfortunately, there’s no quick, easy, or simple way to rebound from a foreclosure.
As it turns out, the best way to protect your credit is to avoid foreclosure in the first place. Contact Adam Diamond Law today if you are worried about facing foreclosure on your home.