Foreclosures occur when you can no longer make mortgage payments on your home. In this case, the bank or lender will begin the process of resuming control of the property and sell it to recoup their losses.
In addition to losing your home, foreclosure can affect your credit score. Understanding these effects is crucial for mitigating them, as explained by this guide.
What to expect from the foreclosure process
While the details can vary depending on the situation, most foreclosures begin after 120 days of non-payment of mortgages. In this case, you may be subject to a judicial foreclosure, which entails a court hearing initiated by the lender. With nonjudicial foreclosure, the lender can proceed with repossessing and selling the home without a court’s involvement.
How it affects your credit
Foreclosures stay on credit reports for seven years. The official starting point is the time of your first missed payment, and not the foreclosure itself. In terms of the impact, most foreclosures cause a substantial dip in your credit score, as your payment history is integral when it comes to calculating it. Once seven years have passed, the foreclosure will no longer be on your record.
What you can do to bounce back
Many lenders will work with borrowers facing hard times, so you should contact them as soon as you know you can no longer make payments. They may offer a payment plan or defer payments until your financial status improves. This will buy you time and prevent the foreclosure process from affecting your credit negatively.
You must also keep up with correspondence during the process to pursue the best possible outcome. Be sure to return phone calls and respond to letters in a timely manner. Ignoring correspondence will not make the problem go away, and it may prevent you from working out an alternate arrangement with the lender.