You know that foreclosures are something to be avoided, but what are the real negative effects of a foreclosure? It will send your credit score plummeting and make it harder for you to get a mortgage in the future, but it can also affect other areas of your life. If you are facing difficulty paying your mortgage or if your lender is already threatening to foreclose, you need to be aware of how foreclosures can affect borrowers. We explain some of the negative impacts below.
Losing Your Home
The most obvious result of a foreclosure is the loss of your home. Imagine all the repercussions of losing your home. Foreclosures can be devastating to families and cause long-term issues. Whether a homeowner leaves voluntarily when the home is sold at auction or is forced out by eviction, going through foreclosure can have a powerful emotional impact on former homeowners. If you have lived in your home for a long period of time, it may have become part of what you consider your identity. Losing that home can have a demoralizing effect.
Negative Impact on Your Credit Score
Your credit score is an indicator of your financial health and history. A foreclosure will have a negative impact on your credit rating, showing that you have failed to meet financial obligations in the past. Qualifying for loans and even credit cards requires a good credit score. Having a low credit score can cause interest rates on any loans or credit cards for which you do qualify to be extremely high. This is a lender's way of protecting itself against the additional risk that a borrower with a low credit score represents.
Qualifying for Future Loans
Once a lender has foreclosed on you it will be difficult to qualify for another mortgage. Lenders will be hesitant to take the chance that you will again fail to make your loan payments. If your credit history does not show that you have been reliable in the past, lenders will be concerned that you will not meet your financial obligations in the future. Even if other factors such as your income level or family situation have changed, your credit report will communicate that you are a risky bet for a lender.
Additional Repercussions from Your Lender
Because you defaulted on your mortgage payments, your lender can legally go after you for damages in addition to taking your home. If your lender is unable to sell your home for as much as you owe, it will take a loss on the sale. Lenders may report this loss to the IRS (Internal Revenue Service), and the IRS will consider the lender's loss as your profit and personal income. This can have very expensive tax consequences for you at a time when you are already in dire financial straits.
Difficulty with Future Landlords
If you are evicted from your home you will need to find another place to live. Yet, if you have ever applied to rent an apartment in the past, you know that many landlords run a credit check on prospective tenants. Property owners do this in order to protect themselves against renters who may not be able to pay their monthly rent charges. Once you have a foreclosure on your credit record, landlords may be hesitant to rent to you, fearing that if you did not make monthly mortgage payments as you promised you may not make monthly rent payments either.
Having your home foreclosed upon negatively affects your life in a number of different ways, some of which may be unexpected. Because of the many negative effects of a foreclosure, it is imperative that you avoid having your lender foreclose if at all possible. Let us help you discover the
foreclosure options available to you.