Being in foreclosure can bring about a roller coaster of emotions in and of itself, but getting foreclosed on by the bank is like an aftershock of an earthquake. It will bring about a whole new set of problems that can wreak havoc on you and yours for years to come. Being prepared and knowing options can help prevent fatal damage and years of headaches. Here are some questions that should be asked when in foreclosure:
The amount of points that can effect your credit will vary based on how high or low the credit score is. If you’ve got a mid to low credit score, you can expect credit bureaus to knock your credit down 85 to 105 points. If your score was excellent…say a 750, for some strange reason, your credit will take a bigger impact. You can expect your score to take a hit of about 140 to 160 points. Wow, huh? There’s a bit more to it, but this is an average/typical range.
Doing a short sale while in foreclosure is only a good option if the home owner has little or no equity in the home. There are some benefits to it though. For example, a realtor can walk a home owner in foreclosure through the process and help them sale their home. A downfall of it is that there are still fee’s for doing a short sale and on top of that, a short sale will still hurt the home owners credit. It is one option, that is only beneficial based on the unique situation of a home owner.
Simply put, yes. It will hurt your credit, but just not as much as a full property foreclosure would. A short sale can hurt the credit of a home owner and typically will stay on their credit for about 3 years and knock their credit down around 100 points.
Fortunately, there are options other than a short sale that will not hurt the credit of home owners
When in foreclosure, many people wonder how it will effect their ability to buy or rent a home once the property is taken by the banks. For good reason, home owners facing foreclosure should be thinking about this. After the bank has taken over the property and your credit has taken a hit, finding a new place to live may not be as easy as many would like to think. Many apartment complexes, and landlords do request credit checks when attempting to qualify potential residents.
Losing a home to foreclosure can make it difficult to find a job based on the career field being targeted. This is because many employers check the credit of potential employees in order to find out the trustworthiness of applicants.
The recovery time can vary depending on the type of loan the home was purchased with. Typical loan types are FHA, conventional or hard money loans. Credit recovery time for an FHA loan can take an average of 3 years. This isn’t nearly as bad as a conventional loan which can take up to 7 years. Curious about how long it will take to recover from a short sale? 2-3 years is the typical recovery time to get your credit back to normal. This may come as a shock to some, but a short sale doesn’t usually satisfy the bank. That’s why it will still hurt the credit of the borrower.
Investors buy houses cash outright. This means that they will pay off the entire mortgage leaving your credit score untouched – besides the few months of back-pay of course(which will likely recover your credit after the home is fully paid). Investors will pay closing costs, and make the entire transaction very smooth. How does that benefit the home owner though? The answer is simple. None of the information listed above will affect the homeowner. Homeowners can actually pocket some cash as well in the deal and walk away with dignity. 7 years of damaged credit is a horrible price to pay.