When you apply for a home mortgage, your prospective lender will obtain a copy of your credit report to review your payment history and look for reports that affect your creditworthiness. A repossession of a vehicle or other secured personal property may affect your ability to obtain a mortgage loan, even if you have redeemed the property.
Repossession Redemption
After a lender repossesses personal property, such as a vehicle, furniture, appliances or electronics, most states give borrowers a redemption period, which varies in length according to state law. For example, Ohio allows you to redeem property within 20 days after repossession. During the redemption period, you can reclaim the property by paying the full balance of the loan, along with any costs incurred by the lender for repossessing the property.
Effect of Redemption
Although a redemption allows you to reclaim the personal property, it does not remove the repossession entry from your credit report, so your prospective mortgage lender will still see that the lender repossessed the property. However, redeeming the property prevents the lender from selling the repossessed property and suing you for a deficiency, which is the amount you owe after the lender applies the sale proceeds. Avoiding a deficiency lawsuit prevents additional damage to your credit caused by a judgment entry.
Effect on Mortgage Qualification
Like late payments, a repossession stays on your credit report for seven years after the date of entry. A repossession entry on your credit report has a more dramatic effect on your creditworthiness than late payment reports. For this reason, potential mortgage lenders may take a repossession more seriously than late payments, even if you redeemed the property. Whether a repossession entry will prevent you from qualifying for a mortgage loan depends on the individual lender's guidelines.
Avoiding a Repossession
Avoiding repossession can help you prevent problems qualifying for a mortgage. If you fall behind on a secured debt, call your lender to discuss a repayment solution. Because repossession is an expensive proposition for a lender, you may be able to obtain a temporary forbearance on your loan payments or pay the past-due balance over time to avoid repossession.
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