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Impact of Foreclosure on Your Credit Rating
When you buy a new home and agree to pay for it through taking out a mortgage then the mortgage lender pays the seller for the home and then allows you to make monthly payments to them for the mortgage amount. They will charge you a certain percentage of the loan amount in interest for the use of the cash that they forked out on your behalf.
If you make your monthly payments on time each month then this will have a very positive impact on your credit rating. If you are late with your payments, even though you make them each month, then this will have a negative impact on your credit scores.
If you get too far behind with your monthly payments then the mortgage holder has the right to foreclose on your loan. This is a legal process in which the mortgage holder evicts you from your home and re-sells the house to another buyer.
State laws vary on how long you must be behind on your mortgage before the lender can foreclose but most states require that you be in default for 90 days for the lender to be able to foreclose on you.
The lender is required to notify the mortgagee in writing of their intent to foreclose. If you bring your account current by paying all back payments, late fees and non-payment penalties then you can stop the foreclosure.
If you can't repay the total amount that you are behind then the mortgage lender may be willing to negotiate a payment plan if you request one. It is totally up to your lender if they want to work with you on such a plan. They may allow you to make your regular payment plus a monthly amount toward the back amount due until you get caught up.
If you can't stop the foreclosure then you are entitled to stay in the home until the foreclosure process is complete and you are evicted from the home. Having your personal items thrown out of the house onto the street is not a pleasant experience so you might want to just go ahead and move before you are actually evicted.
Regardless of whether or not you choose to remain in the home during the foreclosure process you are responsible for the property taxes and maintenance on the home.
You may have the right to redeem the home after the foreclosure depending on the state where the property is located. If it is allowed in your state you can buy the home back, usually within six to twelve months, by paying the complete balance of your mortgage plus a statutory rate to the mortgage lender.
If you allow the foreclosure to actually happen then this foreclosure will be reported to the major credit reporting agencies and thereby will show on your credit report. This will in turn have a very negative impact on your credit scores. It will be at least three years before you will be able to get another mortgage through a traditional mortgage lender. And it will actually be longer if you don't take other steps to re-establish a good credit rating and restore your credit scores to acceptable levels.
So, as you can see foreclosure is something that requires serious attention from you. For the benefit of your credit rating it is important to do everything you possibly can to avoid foreclosure on your home.