How a Home Foreclosure Can Impact Your Future
Home foreclosure is a hot topic these days with the state of the economy, and in this case what you don’t know can hurt you for years to come.
Understanding the impact a foreclosure can have upon your finances, as well as steps you can take to prevent it from happening in the first place, could change your financial future for the better. Here is a closer look at foreclosure and what would take place if foreclosure were to happen to you.
Late Payment? Credit Score Drops
Being late just once on your house payment can dramatically affect your credit score. Although lenders may not contact you when the first payment is missed it will be reported to the credit bureaus and they will typically tack on a late fee.
Lower Credit Score Means Difficulty Refinancing
When your credit score goes down it makes it even harder to refinance, which could help your financial situation. After a number of payments have been missed (usually three) the lender will file a "notice of default" with your local courthouse and send you a letter saying that the foreclosure process will start unless you pay what is owed.
Other Payments Go Higher
A foreclosure is the most damaging item that can appear on your credit report and should be avoided at all costs. It will stay on your credit report for 7-10 years, and you will pay more interest on everything from credit cards to auto loans in tha time. You could pay up to 3% more, or you could be denied credit altogether.
This may seem like devastating news, but we have some advice for what you should do now. Read on and see what you can do to avoid foreclosure.
What You Can Do to Avoid Foreclosure
An important fact to remember is that banks want to avoid foreclosure just as much as you do. Simply put, the banks make more money when a mortgage is successfully paid off.
Many homeowners in financial trouble use what is called a Loan Modification to elude foreclosure. If you can make your regular payments, but have fallen behind with unforeseen events, such as job loss or unexpected bills you should reach out to your lender and see what kind of options they will offer. The lender can change the terms of your loan by reducing the interest or even extending your loan.
This could give you a fresh start regarding your home loan, as your account will be brought current, and will help you avoid the pitfalls a foreclosure would otherwise bring.