Process and Damage of a Foreclosure

At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help you find the perfect home loan for you and your family. Particularly if this is your first time buying a home, there may be several elements of the loan process you need some assistance with, and we’re here to provide it.

One of the simplest areas we assist our clients with is finding a mortgage of the proper size. You need the right level of funds for the home you’re purchasing, of course, but going too far and borrowing too much may leave you at risk of foreclosure – a process that takes place if you’re unable to pay back your mortgage properly. Let’s look at the basics of a foreclosure, how it impacts your credit score and ability to buy a home, and why avoiding it at all costs is vital.

Foreclosure Process

Every state has different exact requirements for a foreclosure, but you’ll generally receive some kind of a warning from your lender when you’re more than 30 days late with a given monthly payment. This warning may come in the form of a letter or a phone call (likely not email).

After several months of this, things will escalate. Your lender will send a demand letter or a “notice to accelerate,” both of which will tell you the exact amount you’re behind and the date by which that amount needs to be paid. The notice will indicate that if payments are not made by that date, the foreclosure process will begin.

In cases where this payment is not made, the lender’s attorney will schedule a date for the sale of the home. This may take a couple months, though it may take longer. Some states, including Utah, have temporary redemption periods – in Utah, these are only for judicial foreclosures. They allow the borrower to reclaim the property if they can pay the full unpaid loan sum, plus costs.

Credit Score Impact

A foreclosure will have a significant impact on your credit score, which can affect multiple areas of your finances. The average foreclosure lowers a credit score by about 200 to 300 points, a precipitous drop. This can be incredibly damaging to everything from your ability to get credit cards to your ability to get a job (some employers look at credit score).

After seven years, foreclosures clear your credit report completely. In addition, if the foreclosure was your only credit-related incident, your decrease may be slightly less significant (unfortunately, most borrowers who are foreclosed on also deal with issues like defaulting other payments).

Length of Wait

If you’ve had a foreclosure, you’ll generally have to wait between three and seven years before you can buy another home. This will depend on the reason for the foreclosure, how you’ve repaired your credit score, and the type of loan you’re looking for. If you came into foreclosure due to economic hardship, you may be able to speed this process up significantly.

For more on foreclosures and why avoiding them is vital, or to learn about any of our home loan services, speak to the staff at Altius Mortgage today.