Losing a home to foreclosure can be devastating, both emotionally and financially. Foreclosure has some long-term consequences that you may not expect but that could affect your life for years.
A foreclosure can cause your credit score to drop by over 200 points. It can take years of faithfully paying credit cards, auto loans and other bills on time to restore your credit to where it used to be.
In the meantime, having your credit score fall off a cliff can make it difficult or impossible to qualify for a new loan or credit card. If you do manage to get approved, youll most likely have high interest rates that can slow your financial recovery.
If you want to buy another house, youll have to wait several years before you can qualify for a mortgage. You might be able to get a new mortgage sooner if you wound up in foreclosure because of extenuating circumstances, such as a job loss, illness, injury, or death in the family, or if you apply for a loan through the Federal Housing Administration.
Until you can buy another house, youll have to rent a home or live with family or friends. If you search for a new apartment or house to rent, the landlord will most likely check your credit. A foreclosure could make the landlord decide not to rent to you.
If you apply for a new job, the company may check your credit. Depending on the type of position, your foreclosure may or may not be a problem. If youre seeking a job handling a companys or clients money, a business may be unwilling to hire you if it seems that youre unable to manage your own money.
If a lender forecloses on your home and the house is sold for less than the amount you owe, the difference is known as a deficiency. Depending on the law in your state, the lender may obtain a deficiency judgment against you and collect the money by levying your bank account or by garnishing your earnings from your job.
You might also have to pay taxes. The Internal Revenue Service considers a loan thats canceled as income, which means its subject to taxes. If youre going through foreclosure or fear that youre heading in that direction, talk to a tax professional about your potential tax burden.
Understand the Possible Implications of Foreclosure
Losing your house to foreclosure could affect many important aspects of your life long after the event. If youre facing the prospect of foreclosure, talk to your lender and a housing counselor about possible solutions to avoid it.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
Published with permission from RISMedia.