This will reduce your monthly payments, and can lower your interest rate, eliminate balances that are past due, extend the terms for a loan, and even change your loan to a fixed rate from an adjustable one. You could also have the option for forbearance, which gives you the option to suspend your payments temporarily, but the missed payments will be tacked on at the end of the loan.
FORECLOSURE IMPLICATIONS
If you’re unable to do anything to save your home, and must allow it to go up for auction, there are credit and tax implications. You will need to be ready to rebuild your credit profile. Once a home is lost to foreclosure, the homeowner’s credit score will drop by as much as 250-280 points. The credit rating will be restored after payments have been made on time for three years. If the credit score is otherwise sound and the foreclosure was an isolated event, homeowners could rehabilitate their records in two years (24 months). This situation is rare, however. Foreclosure typically involves escalating rates which push the individual into more debt. The long-term consequences of foreclosure include years of limited and expensive credit, which can make financial recovery a challenge. Payment history, amounts owed, types of credit used, new credit and length of credit history are all factors that determine a FICO score. Most borrowers want to see a credit score higher than 620 to qualify for a conventional loan. This score becomes increasingly difficult with foreclosure dropping credit scores by 250-280 points. The effects of this are significant. Be prepared to deal with denials of mortgage and credit applications for multiple years once the foreclosure is done. However, as time goes by, the effects will 95
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