Facing the home foreclosure process is scary. Chances are good that you didn’t plan on foreclosure when you bought your home. Chances are even better that you’ve never been through a home foreclosure and you don’t know what to expect. You can find out more about preventing foreclosure in our article about starting out the New Year right.
You should also know that a foreclosure can profoundly limit your future financial security. Stay informed. Keep reading to learn how the home foreclosure process can affect your future.
You Might Have Trouble Finding Somewhere to Live and Work
When the dust settles on your foreclosure, you can expect a drop in your credit score of 160-280 points. This drop will not only affect your ability to secure new credit, but it will change your credit worthiness for leasing a new place to live. It can also affect your ability to find a new job. More employers today are ordering background checks and requesting credit history on potential new hires. Depending on the position and the employer, a low credit score may interfere with you being qualified for the job. Likewise, landlords check credit history and employment history before offering leases to ensure that the lessee will stay current with rent.
Be Prepared for a Notice from Uncle Sam
Many homeowners are unaware of the tax consequences related to the home foreclosure process. The IRS considers a forgiven debt to be a taxable event. For instance, if your foreclosed house sells for less than the amount owed to the bank, the bank can issue a 1099-C, Cancellation of Debt, to you and the IRS. This IRS considers this amount income and you must report it on your annual income tax return.
Foreclosure Stays with You for a While
You can expect a foreclosure to stay on your credit report for seven years. While this is quite a long time, it is possible to start increasing your credit score about two years after the foreclosure event if you can honor your other credit obligations your score will rise.
It Will Be a Long Time Before You Can Buy Another Home
Foreclosure is a major credit event. Once it’s in your credit history, you will have difficulty persuading another lender to trust you with a mortgage.
Help is Out There
You can avoid the home foreclosure process. On our web site you can read about calling your mortgage lender for assistance. You can also read about contacting a real estate investor to discuss your options to sell your home for cash where creative financing or short sale assistance is available.