A foreclosure can be financially and emotionally devastating, but you can recover and get on with your life, according to the Federal Home Loan Mortgage Corporation, also known as Freddie Mac. The agency says there are programs to help foreclosure victims rebuild their credit and even find a place to stay.
Significance
A foreclosure will be reported on your credit report for seven years, according to the Federal Trade Commission. Your credit score could drop significantly, but the negative impact will lessen over time. Good credit management and on-time payments on all your bills will allow your credit score to gradually recover after the foreclosure. A nonprofit credit counselor approved by the U.S. Department of Housing and Urban Development can help you create a plan for rebuilding your credit. Find a counselor in your area by visiting the HUD website (see Resources).
Types
CNN reports that some foreclosures are caused by understandable hardships such as joblessness, illness or divorce. However, other foreclosures occur when people simply walk away from their properties in so-called "strategic defaults." Generally, that happens when the house has dramatically declined in value and is worth less than the balance on the mortgage.
CNN reported in 2010 that lenders are taking a dim view of strategic defaults and that people defaulting on their home loans in that manner may be forced to wait seven or eight years before being approved for a new mortgage. According to CNN, people who lost their homes for other reasons may have to wait only two or three years to be approved for a new mortgage. People who walked away in a strategic default should consult a credit counselor before applying for another mortgage. The counselor can help create a truthful explanation for the strategic default, and the information can be included with the new loan application.
Expert Insight
It may be possible to legally remain in your home after the foreclosure. Freddie Mac reported on its website in 2010 that some lenders were allowing some foreclosure victims to remain in their homes as renters on a month-to-month basis. Ask a HUD-approved housing counselor for the most current information on foreclosure rentals.
Considerations
Freddie Mac also reports that lenders may be willing to help you with relocation costs if you need help moving your stuff as you find a new place. A HUD-approved counselor can provide the most current details.
Prevention/Solution
Making your mortgage payments on time will obviously help avoid foreclosure. Contacting your lender as soon as you begin experiencing financial problems could also help. The lender may be able to lower or even suspend your mortgage payments while you work through a financial crisis.
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