More and more homeowners seem to be falling behind on mortgage payments and must decide whether foreclosure is the only option available to them.  When your home is foreclosed on, there are ramifications that will affect your credit and will reflect on your family for many years to come.  Understanding what foreclosure is and what its effects may be can help you make the best decision for your future.

Foreclosure is the process by which a lender can repossess a home from a borrower who is not making mortgage payments.  This allows the lender to resell the property and recoup some of the money owed to them.  The process may begin once you have missed as few as three payments.

Some of the Ways Foreclosure Affects a Homeowner

  • If the lender cannot sell the property for enough to recoup all that was owed to them on the original loan, they may seek to get the balance of that amount from you through a deficiency judgment.
  • State laws will determine how long you may be responsible for such deficiencies, so you could be hounded by collectors for a long time.
  • Your credit score could take a hit of as many as 300 points.  A foreclosure is the biggest black mark on your credit and will affect your credit negatively.
  • Foreclosures are one of the hardest credit issues to repair, and may remain on your credit record for the rest of your life.
  • You and your family will have to move out of the home.  Moving can cause high levels of stress in marriages, can greatly affect children, and may impact one’s employment or career.   Finding a rental you can afford can be challenging, and moving to a new area can be traumatic to your family.
  • Employers, particularly law enforcement agencies, military institutions, and other government entities often run credit checks, and a lowered credit score may be a reason for a company not to hire you.
  • Current employers often randomly run credit checks on employees.  When one’s credit score drops dramatically, as with a foreclosure, the employer may lose confidence in the employee and the job may be in jeopardy.
  • If you want to apply for a mortgage in the future, the foreclosure on your credit report may seriously affect the interest rates on your new mortgage.  Lenders will usually only offer loans at a higher rate when a foreclosure is on the record.

In addition to these effects of foreclosure, depression, anxiety, and stress are also common issues.  People who have lost their homes also frequently suffer from lowered self-esteem.