Your credit score will begin to be impacted when you do not make mortgage or loan payments for 30 to 90 days. Usually, if a homeowner is late on mortgage payments he or she is missing other payments as well, which will also negatively impact the overall score.
This lower credit score can have a tremendous impact on future purchases. Because of a low credit score, lenders will require a much higher interest rate. For example, an auto loan to an “A” credit score holder might be 0% while the same loan to a “D” credit score holder might be 11% or higher.
Credit cards have a default rate and foreclosed homeowners could see their rates jump as much as 30% .
The immediate impact of a foreclosure on your credit report is estimated to be a drop of 100 to 140 points. The bigger impact is from those late payments on other bills which quickly mount up.
Doing a “Deed in Lieu of Foreclosure” with the lender (turning your property over to the bank, sometimes in exchange for cash-anywhere from$1000 to $2500) has the same impact on your score as a foreclosure.
Generally speaking, a foreclosure stays on your credit report for seven years, but this doesn’t preclude past homeowners from buying a home in the future. However, it will be difficult. Fannie Mae recently increased the length of time it takes from the completion of a foreclosure sale until a borrower can get a new mortgage from four to five years. A federally insured FHA loan may be the best avenue to obtain a mortgage after foreclosure, however, the waiting period is at least three years after a foreclosure sale.
