Foreclosure, How Will It Affect Your Credit?

Unfortunately, the number of foreclosures in the real estate market today is in the hundreds of thousands. If you are one of the many people that are facing a foreclosure you probably have many questions. Probably the biggest question would be how a foreclosure on your record is going to affect your credit. There isn't much good news when it comes to this question as the affects to your credit will be detrimental. You will have to work long and hard to rectify the damages caused by a foreclosure. However keep in mind that the damages done will not be permanent and as long as you stay on top of your other debts and hold steady employment you will be able to buy a home again.

A foreclosure will drop your credit score anywhere from 200 to 300 points. That means that even with the best of credit scores you will still have negative credit. It will also be very difficult to rent an apartment or secure utility service once the foreclosure commences. These are things to keep in mind when you are facing a foreclosure. There are a few alternatives that can maybe save your home or at the very least lessen the negative impact on your credit score.

If you wish to save your home from foreclosure but you are still unable to make the mortgage payments you may be able to negotiate with your mortgage lender for a loan modification. A loan modification is where they try and maneuver the terms of your loan to make your payments low enough for you to pay them. They do this in a few different ways that include lowering the interest rate, extending the life of the loan, making the interest rate variable, or a combination of the three. If they were to make the interest rate variable they would probably start with an extremely low interest rate (such as 1%) for five to ten years. Then the interest rate would skyrocket to make up for the lost interest. This option is only recommended if you are planning to sell the house but need to lower the payments to avoid foreclosure while it is on the market.

If you have already come to terms with losing your home you may want to consider doing a short sale rather than a foreclosure. A short sale does adversely affect your credit but not as much as a foreclosure would. It also would not stay on your credit record as long as a foreclosure and you can begin to reverse the negative effects of a short sale after only about a year.