Foreclosures: A Crash Course

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Foreclosures: A Crash Course

Buying a home is no easy feat. Neither is paying it off. If enough consumers confidently plunk down cash for a home, economists cheer. On the flipside, foreclosure rates are also commonly used as a barometer for the country's economic health and recovery. But what does foreclosure mean on a personal level? Read on to learn more about the foreclosure process and how a foreclosed home could impact your credit health.

What is foreclosure?

When most people buy a home, they cannot afford to do so in cash, so they take out a mortgage and the home is used as collateral to secure the loan. If you fall behind on your mortgage payments, foreclosure is the legal process by which a lender may attempt to force a sale of the home used as collateral to make up for its financial losses.

Please note that the specific processes and laws regarding foreclosure vary from state to state, so if you're facing foreclosure, be sure to consult local resources and the regulations applicable to your state. The Consumer Financial Protection Bureau has compiled a guide that you may find helpful, including a number to connect you with U.S. Department of Housing and Urban Development-approved counselors. You could also reach out to nonprofits like NeighborWorks America for additional guidance and information.

How can foreclosure affect my credit score?

A foreclosure is considered a public record and is listed on your credit report alongside other public records, such as a bankruptcy or tax lien. Foreclosures are a serious matter that will cause a major drop in your credit score. TransUnion, one of the three major credit bureaus, says that your score could drop over 200 points. While it is impossible to predict exactly how much your score will drop, the impact can clearly be drastic.

Your Future After Foreclosure

A foreclosure will typically remain on your credit report for seven years from the date filed. If you have a foreclosure on your credit report, it's likely you'll pay more for insurance and you may even have a hard time finding a new place to live. That's why it's important to start working on your credit health before the foreclosure is even removed from your credit report. Steadily follow through on whatever payments you can, and consider opening a secured credit card if your existing creditors close your credit cards after the foreclosure occurs.

Bottom Line

Having a foreclosure on your report probably won't prevent you from ever obtaining a mortgage again, but you may need to wait a while until you're able to qualify or get the rates you're hoping for. Keep an eye on your overall financial health, and practice good habits in the meantime.

About the Author: Kayleigh Gaddor is the Community Manager at Credit Karma. Not content to stay in one place too long, she's most recently traveled to Hong Kong, Scandinavia and Hawaii. An avid reader and proud introvert, Kayleigh can usually be found with her head buried in her Kindle.

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All Comments

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1 Contribution
16 People Helped

Helpful to 16 out of 19 people

What is the difference between a Foreclosure and a Short Sale of property?  On my credit reports the bank who was holding the mortgage put on my credit report it was a Foreclosure instead of a Short Sale of my property.  They tried to Foreclose 2 times while the short sale was being approved and stopped it each time when I called on it, but it is showing on all credit report as a FORECLOSURE and it was NOT.  A Short Sale is something the Bank ACCEPTS as a sale of the property at a lower sales price. This was when the prices were so low in 2010 and the banks were accepting them.

1 Contribution
2 People Helped

Helpful to 2 out of 3 people

I had an unfair judgment against me...the guy got paid the same week as the judgment was awarded to him....He never reported it back to the court that we paid we have had this negative mark on our record since 2010....they are so quick to give you an unwarrented back eye but not so quick to clear your good name...

1 Contribution
0 People Helped

I paid a company $3000 to lower n refinance my home. They told me not to pay, they never recorded this n my home was sold right under my face n I lost it. No transactions was filed as I called from their office n court said there was nothing I could do. 

1 Contribution
0 People Helped

how do i check for evictions on my record???

1 Contribution
0 People Helped

I am not sure who you are to speak regarding my home and it being in any foreclose or short sale as this is not true and never was true. Who ever you are stay out of my business. My home is safe and secure with the original mortgage nothing ever was attempted to not pay this debt and this you hear from me not someone who is stating something false. halsey11's I never ask you because this never applied to me. JaniceABM1

1 Contribution
4 People Helped

Helpful to 4 out of 9 people


1 Contribution
0 People Helped

Helpful to 0 out of 1 people

hey guys did ya'll see a for closure house in my report i am kinda suprise because i never buy any house in my entire life what for closure ya'll talking about

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