There are many options for homeowners facing foreclosure, but giving up is not one of them. The home-buying process may have begun with the best of intentions, but high mortgage payments and unexpected life situations can cause once-happy and capable homeowners to fall short of their contractual obligations. A missed mortgage payment is not a credit score death sentence, but rather, an opportunity to explore other options to protect your financial reputation and investments.
New homeowners often do not realize the extent of impact a missed mortgage payment can have on their credit score. Delinquent payments can lead to instant credit score penalties or even having your home listed on sites such as Zillow as a “pre-market listing” for other homebuyers to consider for purchase! Foreclosure is especially harmful because it not only drops a person’s credit score by more than 100 points, but the negative credit score history remains for seven years. This means banks will see your foreclosure for the better part of a decade.
Why is it bad to have a low credit score?
First and foremost, future lenders will pull credit scores (usually FICO) before setting up any line of credit. A low credit score means receiving worse interest rates or flat-out denial for loans.
Foreclosure prevents new home ownership, too. For FHA-backed loans, a one-year wait is required before obtaining a new mortgage (although, for some, the wait can be as long as seven years).
How do I fix my credit score?
The best thing to do with a low credit score is to remain current on all outstanding debts. Make sure payments are sent in full and on time. If all other debts are paid on time, it is possible for a FICO score to begin the recovery process in as little as two years.
What are the alternatives to foreclosure?
There are many options to avoid foreclosure. Among the most popular are:
- Cash offer: Cash offers are beneficial because homeowners receive a quick cash payment and the property in question is no longer a factor. Cash offers from companies such as All Homes AZ can be obtained quickly and allow homeowners to avoid foreclosure altogether.
- Loan modification: Loan modifications also provide financial relief for homeowners, but it is important to make regular on-time payments or a lender could continue to report negatively while your loan modification application is pending.
- Bankruptcy: Bankruptcy is only useful in that it buys extra time (usually about six months) before the foreclosure process begins. Frequently terms of payment can be renegotiated when a person has filed for bankruptcy. This option does not solve an individual’s financial situation, but can postpone the foreclosure process.
Will a short sale or deed in lieu save my credit score?
Although these are additional options many people choose in place of foreclosure, they are not financially preferred, as both options will still significantly reduce a person’s credit score. From a lender’s perspective, these are not beneficial.
What about credit-repair companies?
In this case, there is no magic fix for credit scores. Once a score is damaged you must wait the allotted amount of time for it to be taken off your history. The majority of companies that claim to “fix” a credit score are scams masquerading as legitimate businesses. Delinquent payments remain visible on a person’s credit score for seven years and no amount of bargaining or pleading will change that.
Foreclosure is never the ideal situation for a homeowner, but it is important to know there are options to prevent or halt the process and protect your credit score. Despite numerous scams on the market, there are plenty of legitimate businesses who want to help homeowners discover alternatives to foreclosure and the stigma it carries. Call All Homes AZ and liberate your financial life today!
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