Friday, August 18, 2006

Foreclosure Impact

In my first post, I promised more information on what happens when you go into foreclosure on your home. I found this interesting, helpful article on What to do if it happens to you.

Another website said foreclosures and bankruptcies stay on your credit report for 10 years and always decrease your credit score. The older the bankruptcy or foreclosure account becomes, coupled with re-built credit history, the less of an impact they play on your credit score. As I continued my Internet search, I found a site that said foreclosures stay on for 7 years. Both of these sites describe the FICO analysis formula, so I found myFICO which provides good information. The site does try to sell you software, but I'm linking for the sake of information.

The bottom line is foreclosures are very bad for you. Your credit score will probably drop by 35%. So if your score was a solid 700 before a foreclosure, it will drop to a 455 after. That means you will not be able to purchase another home. If you score was a phenomenal 800 before a foreclosure, it would drop to 520. OUCH. No new home for you.

These drastic drops in your credit score will mean that if you are even able to purchase anything for on credit (e.g., cars) in the next couple of year, you will pay a much higher interest rate. In addition, if you lose your home to foreclosure and have to move to an apartment or rent a home, your credit will be checked! If your score is low, then you may be denied housing. Landlords are protecting themselves from renters who don't pay and if you didn't pay your mortgage enough so that you lost your home, then their risk is great that you may not pay your rent either.

If you are divorcing and sign a quit-claim deed to the home, YOU ARE STILL RESPONSIBLE FOR THE MORTGAGE until the ex-spouse refinances and gets your name off the loan. Stay on top of this because if the ex doesn't do what the court orders, your credit and purchasing power will also be gravely hurt.

There ARE people who can help you. You can go online and search for "free credit score help" or you can call local lenders who would be willing to help. They can't fix it for you, but they can tell you who to contact and what to say. Here are a couple of very credible, professional people who I've had the good fortune to work with in real estate transactions:

Jodie Pelley, Wilson Bank & Trust
Phone (615) 443-6670

Scott Matuk, Professional Mortgage Group
Phone (615) 907-0447

If you call either of these fine folks, tell them Kathy T. sent you!


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