Foreclosures may be on the decline (finally) in our country, but there are a lot of families out there who may be behind on payments and considering foreclosure as their last option. Like bankruptcy, foreclosure will stay with you and haunt your credit score for seven years.
When your home is foreclosed on, your credit score will drop somewhere between 200 and 300 points. Of course, it can’t drop your score any lower than a 340 (the lowest one can get on his or her credit report), but if you have a good score of 700, you could find yourself with a 400 (which is pretty awful).
Your credit score is more than about just being able to get loans. Your credit score is also the key to lower rates on things like insurance and your future job prospects.
If you do go into foreclosure, you want to make sure that any other credit obligations that you currently have stay up to date and paid. If you’re in good standing with your other debt obligations, then the foreclosure looks like a single item and you can start to rebuild your credit score after just a couple of years.
It is so important to make sure that you know all the implications of going into foreclosure. It is one of the things that should be well thought out instead of made in a hasty decision based on panic. There are also ways to avoid foreclosure if you find yourself looking down that road.
You could attempt to negotiate with your lender. After all, most lenders don’t want to foreclose on your home. In a market that is overflowing with houses for sale, the last thing the bank wants is another foreclosure. If you can give your lender a time frame to catch up on payments, they may actually be willing to work with you.
Sometimes you and your lender can reach a forbearance agreement. This agreement can take effect when you have come into a temporary hardship and the lender agrees to lower your payments until you can get back on your feet. Sometimes the lender will even suspend the payments for a limited amount of time.
As part of talking with your lender, another conclusion you may come to is some sort of loan modification. The lender may be able to lower the payments or, once you are able to pay the full price, start incorporating any late payments into the monthly payment. This would keep you from paying a full mortgage payment as well as any delinquent payments on top every month.
