Unfortunately, a foreclosure hurts your credit score, meaning that it will be more difficult and sometimes impossible to obtain credit cards and loans in the coming years and that you can expect to pay higher interest rates. Foreclosures usually occur only after you miss at least four consecutive monthly payments (120 days of delinquency). Late payments lower credit scores more than any other negative entry, so your credit scores will generally drop significantly even before a foreclosure appears on your credit report. If you also don't make payments on other debts, this has a compound effect.
A foreclosure can be bad news for your credit score. Stay on your credit report for up to seven years and it will lower your credit score significantly, making it difficult to qualify for credit cards and credit products or receive exorbitant interest rates if approved. However, the impact will diminish over time if you manage your other debt obligations responsibly. Foreclosure information generally stays on your credit report for seven years from the date of the foreclosure.
Even if you have a bad credit history or a low credit score, you may qualify for a Federal Housing Administration (FHA) loan. You may also qualify for a subprime mortgage, but keep in mind that subprime mortgages can have much higher interest rates than most other mortgages. Carefully consider the costs and risks of the loan offered to you and compare the costs of the loan you could get now with the option of waiting and increasing your credit history before buying a home. After a few years, it is possible to obtain another mortgage or other type of loan with credit conditions comparable to those you could have obtained before the foreclosure.
If you're not sure how to recover your finances after a foreclosure, you can get help from a professional credit counselor. You can reduce the waiting period to get an FHA loan, but you'll need to prove that the reason for the foreclosure was out of your control, such as job loss or medical bills. A foreclosure occurs when a mortgage lender takes possession of a borrower's property after the borrower fails to make payments on their loan. Every lender sets their own lending criteria, and there is no universal rule for how a lender will treat a foreclosure in terms of this criterion.
First, there is usually a waiting period before a lender approves a mortgage for a person who has foreclosed on their credit report. If it doesn't appear in your report after that date, or in the very unlikely event that your credit report reflects a foreclosure that never occurred, you can use the credit report dispute process to document the error and correct your credit reports. And if your home is sold for profit in a foreclosure sale, this gain may also be related to the obligation to pay income taxes. If your home is sold at a foreclosure auction for less than what you owe on your mortgage, you will have a deficit balance.
Keep in mind that much of the damage to your credit rating will occur when you don't make your first mortgage payments and before the foreclosure process begins. These include what your score was before foreclosure and the number of negative entries on your credit report. As if that weren't complicated enough, the foreclosure process will also be governed by the mortgage and the promissory note. Crawford left her career as a real estate agent and now works as a loan broker, helping others who have dealt with foreclosure get another chance to own a home.
But before we explain what these options are, let's start by looking at what foreclosure is and what it does to your credit history. Foreclosure is a significant negative event in your credit history that can significantly lower your credit score and limit your ability to qualify for credit or new loans for several years later. .
