Foreclosure is a consequence of defaulting on your mortgage that will wreck your credit score.
Having a mortgage loan on your credit file can help your credit score, if you pay your lender on time each month. Although homeowners have good intentions and many plan to fulfill their end of the loan agreement, circumstances such as loss of employment can cause a homeowner to default on their mortgage. There are consequences to defaulting on a mortgage. Before you skip a payment, it's wise to reflect on the possible repercussions.
Damaged Credit
Lenders regularly report to the credit bureaus, which benefits borrowers who pay their mortgage on time. But if you have a habit of skipping payments or being more than 30 days late on your mortgage, you can expect your credit rating to drop. A lower score can stand in your way of acquiring additional lines of credit such as auto loans, a second mortgage, credit cards and other types of loans. And if you were to apply for a new home loan, your new lender will take note of your poor payment history upon reviewing your credit file, and possibly deny you a mortgage.
Late Fees
Mortgage payments are traditionally due on the first of the month. Depending on your mortgage lender, you may have a 15-day grace period, wherein you can submit your mortgage payment up to the 16th of the month without penalty. Defaulting on your mortgage loan not only results in a damaged credit score, you can also expect your mortgage lender to charge additional fees.
Foreclosure
Foreclosure occurs when you fail to submit a mortgage payment for months. Lenders start the foreclosure process at different stages. One lender may wait until a borrower is three months behind on payments before beginning the pre-foreclosure process, whereas another lender may delay the process for six months. A foreclosure will devastate your credit score, and it may take several years to qualify for a new mortgage loan.
Deficiency Judgment
Even if your mortgage lender sells your home after a foreclosure, they may hold you responsible for any remaining balance. Banks may list their bank-owned properties with real estate agents or hold an auction to unload the properties. They want to recoup their loss, and they'll attempt to sell the property for the balance owed. If your lender has to accept a lower offer on the property, they may take legal action and come after you for the balance.
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