What Will My Credit Look Like After a Foreclosure?

If you are facing foreclosure, the first thing I would do if I were you is STOP reading this, CALL your mortgage company, and start trying to work things out. They are faced with so many defaults these days that they are often willing to work something out with you, like perhaps a lower interest rate, or deferred payments, or perhaps some other means. Honestly, they don’t want your house back. The market isn’t overly great right now, and houses are pretty hard to sell. If they get it back, they will have to go through a lot of hassle to sell it, and they will lose money on it anyway. Add in the legal costs of foreclosure, and you might have a good case to get a lower payment and keep the house. If you are financed through HUD, call a local office and ask for help. They WANT to help you stay in your home!

You’re still reading. Sorry to see that.

OK, so it happened. You are losing your home to foreclosure, or maybe you already lost it. It doesn’t matter why at this point, it just happened. Now you have to deal with a few things. The first thing is the fact that your foreclosure will show up on your credit report for the next 10 years. The second is that you are going to have a hard time getting a mortgage on another property for a while. And the third thing is you now have no place to live.

Let’s deal with the third thing first. You need to have a place to live. Of course, if things are really bad, you might be able to turn to friends or family for a while to be able to have a place to stay. That can help you recover for a while you get your finances in order. Another option is to rent, but there is a problem there: most companies that rent properties will not be interested in renting to a person that couldn’t handle their mortgage. My experience is that they will want at least 2 month’s rent held as a deposit, and they will probably charge you a steeper monthly rent. If you are like most people, if you had an extra 2 month’s rent, you probably would have been paying your mortgage!

Who can you rent from then? Well, a private owner may be willing to take a chance on you. Your local newspaper or a site like http://craigslist.com will have places for rent by owner as well as by corporations. An owner is less likely to run a rental history or credit check on you, as that costs them money and they might not know how to do a background check. However, they might also be less likely to fix things that are broken.

As far as a mortgage goes, it’s probably not going to happen. Unless you have a huge down payment and an income that makes Donald Trump jealous, you probably won’t get financing at this point. All is not lost, however. You can expect to be able to get a mortgage within a year or so. It may take a bit longer than that depending on the rest or your credit history, but if you start taking care of the rest of your credit and can show a consistent good payment history, it will help a lot.

And finally, what about your credit report. Well, two things are going to happen. First, the fact that you are going to mortgage means that you missed payments. So, you will have late payment notations that look something like this:

Late Payments (last 7 years):

30 Days Late: 2

60 Days Late: 4

90 Days Late: 4

You will get these notations on all three of your credit reports. Late payments are a big red flag to lenders, so this will hurt your credit scores. Worse, though, is this:

Remarks:

[TransUnion] Foreclosure redeemed

[Experian] Foreclosure proceeding started.

Credit grantor reclaimed collateral to settle defaulted mortgage.

[Equifax] Foreclosure

Real Estate Mortgage

This is from a tri-bureau report with a foreclosure on it.

A foreclosure is the second-worst bad item on your credit report. The only thing worse is a bankruptcy. So, be prepared for the fact that it will take some time to fix your credit after going through foreclosure proceedings.

Going through the loss of your home is horrible. If you have gone through it, I wish you well in recovering your situation. If not, and you read this anyway, try to work things out and avoid the problems that will plague your credit for the next 10 years.